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A COMPILATION OF INFORMATION AND COUNSEL, ORIGINAL AND 
OTHERWISE, FOR THE ENTERTAINMENT AND INSTRUC- 
TION OF LIFE INSURANCE AGENTS. 



BY 



/ 



MILES MENANDER DAWSON, 

Consulting Actuary, Author of 

^Elements of Life Insurance,^^ ^'Practical Lessons in Actuarial Science^ 

^^ Principles of Insurance Legislation,'^ "Assessment 

Life Insurance,'' etc., etc. 



THE insurance: pre;ss, 






88498 



Library of Coir>gres9 

Two Copies Received 
DEC 141900 

^ Copyrirht entry 

SECOND COPY 

Oe((v«red to 

ORDER DIVISION 

DEC i7iqnn. 






Copyrighted 1898 and 1900 by Thb IifsuRANCE Psbss. 



CONTENTS. 



THE AGENT. ' . 

What Constitutes an Agent? ; i 

An Insurance Agent is a Salesman. . 3 

Making Up Men's Minds for Them. ,^y^.. 6 

The General Agent ^t-c^. 9 

Two Things to Consider 11 

Local Repute of a Company 13 

The Best Company 15 

Read Your Agency Contract 18 

Fire Insurance and Life Insurance Soliciting Con- 
trasted 20 

Success the Agent's 23 

The Agent Who Does Not Agree With His Company 25 

Quarrel Not With the Conditions of Your Occupation. 29 

Be Loyal 31 

Giving Credit for Premiums ZZ 

To Whom Should Check Be Drawn? 35 

Certified Checks 39 

Don't Mix Bank Accounts 41 

Don't Confuse Your Accounts 44 

Care in Writing Applications 46 

Irregular Incomes of Agents 48 

Avoid Obligations 51 

TWISTING AND REBATING. 

Don't Twist Policies 54 

Rows About Twisting 57 

Twisting by Wholesale in the Old Days 60 

Carry a Copy With You 63 

I§ TfikiPg 3t Note Without Interest Rebating? » » 65 

III 



IV Contents, * 

CANVASSING MATERIAL. 

Introductions — From Whom and How? 67 

Use of References » 70 

Using the Names of Patrons 72 

"Over Their Own Signatures." 74 

The Binding Receipt 76 

Have Your AppHcation Ready 78 

Competitive Literature 80 

Illustrations and Estimates 82 

Are Illustrations Necessary? 85 

Annual Dividend Estimates 88 

Unfulfilled Gloomy Predictions 91 

The First "Handy Guide." 93 

CANVASSING. 

The Best Way to Approach a Man q6 

Pique the Interest on the Start 99 

Know What You Want, and Go Straight After It. .. 102 

Singleness of Purpose 104 

Beware the Man of One Policy 106 

Selling the Policy You Wish to 108 

Letting Up Too Easily iii 

Give Him a Chance to Think 114 

"As a Favor to Me." 116 

"Call Backs." 119 

Steerers and Helpers 121 

Springs of Enthusiasm 124 

Seek Proper Opportunities 126 

Be Systematic 128 

Mind Your Appearance 130 

Reciprocity With Dealers 132 

When Premiums are Paid .,..,...., 134 

The DelinquentSt ...»♦.»» MM MM MM ♦♦♦•♦ MM »•• ♦•♦» 137 



Contents. v 

Conditional Applications 139 

Dating Back Policies 141 

Semi-Annuals and Quarterlies 143 

Taking the Examiner with You 146 

Tardy or Negligent Medical Examiners 148 

Time is Money 150 

Schemes for Lazy Men 152 

Wasting Time on Impaired Risks 154 

The Agent's Right to a Hearing 157 

Honors are Easy 159 

Thoroughly Worked 162 

Snubs 165 

An Antidote for Procrastination 167 

Dwell on the Attractive Features 170 

Your Weak Point 172 

Reserve Arguments 174 

"Can I Afford It?" 176 

But Not So Soon 178 

Meeting Objections to Cash Surrenders 180 

Halting Between Two Opinions 183 

The Wife's Opposition 185 

A Favorite Comparison Well Put 189 

"ril Take the Chances." 191 

The Other Company 193 

Meeting an Offer to Rebate I95 

DONTS. 

Not Too Many Figures 198 

Don't Throw in an Education 201 

Don't Mix Lines 203 

Don't be Offensive 205 

Don't Face the Window ..... 207 

Pon't Overload Your Customer, • » » ,,,,,,,,,,,».,♦,, gog 



VI Contents. 

Neither a Plunger nor a Plodder Be 211 

Don't Curry Sympathy 213 

POLICY FEATURES. » 

The First Appearance of Non-Forfeiture 215 

The Beginning of Cash Surrenders 218 

Equitable Value of Policies 221 

An English Authority on Surrender Values 224 

The Genesis of Annual Dividends 226 

Early Dividend Plans in the United States 230 

Dividends and Interest 232 

Annual versus Deferred Dividends 234 

No Money in Lapses 22,6 

Incontestability 238 

The Suicide Clause 241 

Grace in the Olden Days 244 

Promptness in Paying Death Claims 246 

The Power of Assignment 248 

Modern Innovations in Life Insurance 250 

The Loan-Note Plan 253 

Are Premium Notes Safe? 256 

MORTALITY TABLES AND STATISTICS. 

A Mortality Table from the Ancients. 258 

The Oldest Modern Mortality Table 261 

First Mortality Table Used 263 

History of Mortality Tables 266 

Early American Mortality Experience 270 

Early American Tables 272 

The Mutual Life and the American Experience Table. . 275 

The First Mortality Table for Annuitants 277 

Select Life Tables 278 

Conteipporary Opinions of the Actuaries' T^bl^ ..... ?8j 



Contents. vii 

Male and Female Lives, Insured and Uninsured 284 

A Mortality Table Beyond Age 100 287 

Who Live Longer, the Rich or Poor? 289 

RESERVES, ETC. 

Reinsurance Reserves — Unearned Premiums 292 

Are Reserves Individual or Aggregate? 295 

Origin of the 4 per cent. Standard 297 

Sheppard Romans on Gross Valuation 299 

Changes of Standards 301 

ACTUARIAL ODDS AND ENDS. 

The Beginnings of Actuarial Science 305 

The Office and Influence of the Actuary 307 

Insurance is a Hedge 309 

The Origin of Life Annuities . 312 

The Quarrels of Actuaries 314 

Break of Life 318 

Longevity of Actuaries 320 

What if One Don't Die by Age 100? 322 

Policy and Premium 324 

The Relation of Sickness to Death 327 

Genesis of Loading 329 

Commutation Columns 332 

Survivorship Annuities 335 

Installment and Continuous Installment Policies 337 

Partnership Insurance 340 

Using Actuarial Knowledge in the Field 344 

SUPERVISION. 

State Supervision in the United States 349 

National Supervision in Great Britain 353 

The English Act of 1870 355 



VIII Contents, 

Arguments for National Supervision Here 357 

Starting a Company in England Prior to Government 
Supervision 35^ 

ASSESSMENTISM. 

An Early Form of Assessmentism 362 

Assessment Prototypes 365 

The Amicable Society 367 

Some Features of the Amicable Society 369 

New Blood 373 

HISTORICAL. 

The Origin of Insurance 37S 

Foundation of the First Regular Life Insurance Com- 
pany 377 

The Oldest Life Insurance Companies 382 

Has Any Regular Company Let All its Business Run 

Off? 384 

Before the Days of Medical Examiners 386 

Oldest Stock Company in the United States 389 

A Life Insurance Charter Refused in 1833 391 

The Beginning of Life Insurance Agencies 394 

An Olden Time Argument Against Agents 397 

The First Actuary in the United States 401 

Stamp Tax that Brought the Revolution 404 

American Insurance Abroad 406 

The Orignial Under-Average Company in the United 

States 408 

Renewable or Continuable Term Insurance ^ . 410 

Laws Regulating Insurable Interest 412 

Enforcing Punctuality 416 

How Dr. Price Ante-Dated Darwin 418 



Contents. i x 

MISCELLANEOUS. 

Simple and Compound Interest 420 

Are Brown Eyes Indicative of Short Life? 423 

Adequate Premiums More Important than CapitaL ... 425 

Walford's Tribute to Americans 427 

Consumption and Overweights 429 

Preference on Liquidation 431 

EHzur Wright on Insurable Interest 433 

Birth Insurance 435 

Family Endowments 437 

The Average Policy Decreases in Size 439 

A Remarkable Though Mistaken Prophecy 441 

Life Insurance Terms Defined 444 



The Agent. 



WHAT CONSTITUTES AN AGENT? 

The best authority on this subject, so far as insurance 
agency is concerned, is a Httle book called The Insurance 
Agent; His RightSy Duties and Liabilities, by the late Judge 
John A. Finch. Judge Finch quotes as the best general 
definition of "agent'' the following from the American 
and English Encyclopcedia of Law: 

"An agent is defined as a person duly authorized to act 
on behalf of another, or one whose unauthorized act has 
been duly ratified/' 

After considering what the statutory laws are in many 
States, Judge Finch closes with the following compre- 
hensive and accurate definition of what constitutes an in- 
surance agent: 

"It may be stated broadly that, in the absence of a 
statute on the subject, any person who does any act for a 
company with its knowledge or consent, or who receives 
a compensation or commission from a company for acts 
done in connection with the making of the co^ntract of in- 
surance, or whose unauthorized acts in connection with 
the making of the contract are afterwards ratified by the 
company, will be held by the courts to be the agent of 
such company. In the absence of a statute, or a special 
appointment from the company, the above rule governs 
the question of agency." 

I 



2 Things Agents Should Know, 

One of the significant features in this definition is that 
under it every person who acts as a solicitor or broker 
becomes partly, at least, an agent of the company. Con- 
cerning this the same author makes the following state- 
ment: 

"After the application is made through the broker, if 
the company sends the poHcy to the broker, and leaves 
the collection of the premium to him, the company 
thereby makes the broker its agent for the purpose of de- 
livering the policy and collecting the premium, and will 
be bound by what he does in the premises to the same 
extent as if it had been done by a duly authorized and 
commissioned agent/' 

This is further modified by the following: 

*'If the assured is solicited by the broker for insurance, 
and makes application through him, not knowing that he 
is not authorized to act for the company, and the company 
accepts the application and sends the policy to the broker 
for delivery and collection of premium, ihe broker will be 
considered the agent of the company for the whole trans- 
action,''^ 

There is an impression abroad that a broker not hold- 
ing an agency appointment from a company may allow 
a rebate, even when agents are forbidden by law to do 
so. Very evidently, since the broker is the agent of a 
company for the purpose of the delivery of the policy and 
collection of the premium^ for which acts only is he paid 
by the company, presumably, any rebate which he may 
allow is really a rebate made by an agent. 



The Agent. 3 

AN INSURANCE AGENT IS A SALESMAN. 

In any case, it is undeniable that in insurance an un- 
usual part in the selling is played by the personality of 
the agent. 

Fire insurance which has become as stable in demand 
as sugar is a thing which, Hke kissing, actually goes by 
favor; that is, when rates are uniform. And if they are 
not uniform, the very cutting of rates is itself entrusted 
to agents. 

Other forms of insurance which have not yet become 
so securely in demand or in which there is a diversity ci 
plans offered, call for remarkable talent on the part of the 
agent in the matter of addressing his customers and in- 
clining them to patronize him and his companies. 

It is owing to this individual character of an agent's 
business that although the law says that a fire insurance 
company's business belongs to it, notwithstanding this, 
in actual practice, the business belongs to the agent who 
can generally hold the business for a new company 
against anybody that the old company may employ. 
This has been repeatedly demonstrated. 

The agent's business is to get business, to sell insur- 
ance. It is a correct understanding of this fact which 
causes companies to overlook many irregularities of con- 
duct in other matters^ which in themselves make the 
managers feel that the company is misrepresented. 

Much is forgiven the successful agent. 



4 Things Agents Should Know. 

Who is the successful agent? 

The agent being a salesman, the successful agent is 
the successful salesman. 

You will find agents who have been forgiven all the 
other offenses in the calendar, but nowhere will you find 
the agent who has been forgiven for not selling insurance. 

An agent may represent his principal in different ca- 
pacities. Thus a fire insurance adjuster is very properly 
called "a special agent'' sometimes; for what he does is 
done in the stead of the company which is his principal. 
His agency powers are confined and strictly limited to 
the "speciar' acts, to perform which he is employed. 

But in insurance the agent, par excellence, and the only 
agent with which this series will ordinarily concern itself, 
is the man who sells insurance. He is primarily a sales- 
man, just like a mercantile salesman, except that he sells 
indemnity contracts instead of commodities. 

When that expression, ''sell insurance," first began to 
be employed, which, by the way, was not many years 
ago^ it sounded very peculiar in men's ears, merely be- 
cause it was new; but it had merit and aptness of expres- 
sion, and it has stuck. 

Before that, men ''took out" insurance instead of buy- 
ing it. And agents "took applications," as indeed they 
continue to do when they get a chance, instead of selling 
insurance. 

But the agent was, then as now, a salesman, charged 
with the duty of finding customers, selling them, what 



The A^cnt 



i^' 



they need, or at least will buy, and collecting the pur- 
chase money for his principal. For this duty he was paid, 
and usually is still paid, a commission proportionate to 
the premiums collected, and any other method of com- 
pensation that has ever been proposed has either seemed 
unsuitable in comparison with this upon consideration 
or has been tried and actually found unsuitable. 

Mercantile houses find it possible to save money 
sometimes, if not most of the time, by employing sales- 
men on salary. This is owing to two things; first, that 
the commodities are concrete and ^.re largely bought by 
men who understand them through and through on their 
merits; and^ second, that often the name of the house 
helps to sell. 

No doubt the name of an insurance company often 
helps materially to sell its policies, perhaps quite as much 
as the name of an old-established business house. But 
the trouble is that, in most lines of insurance, all the com- 
panies, or nearly all, have that good name. 



-V 



Things Agents Should Know. 



MAKING UP MEN^S MINDS FOR THEM. 

Life insurance canvassing is peculiarly a business in- 
volving ''making up men's minds." An agent is en- 
gaged at this arduous task for about two-thirds of his 
time. 

Consequently the agent should be a student of the 
gentle art of persuasion. And the first lesson in that art 
is that it calls more for passiveness than for activity. 

The agent must remember that the natural stage is 
inertia; momentum calls for propulsion. But this 
propulsion must come from within and not from with- 
out. 

Therefore, the agent's wisest course is to study to 
create a desire for the thing which he has to sell. When 
the objections and the pleas for delay come to the sur- 
face, as they surely will as soon as the ''prospect" is con- 
vinced that he wants the insurance, and no sooner usu- 
ally, it is still better policy to avoid helping the "pros- 
pect" over his obstacles, but instead to increase by all 
legitimate means the attractiveness of what you are 
offering. 

Then, be patient! 

In ordering their expenditures, men are constantly ex- 
ercising selection. At times they will even go without 
meals to buy a thing for which they feel a strong desire. 
The thing necessary is to stimulate the desire up to the 



I 



The Agent, 7, 

point that the ''prospect'' in his own mind chooses to 
risk privations of some other nature to remaining with- 
out this. 

It will not be so difficult to do this as to answer cata- 
gorically all the objections and pleas for delay that may 
be offered. Moreover, it will be more efficacious. To 
answer the objections is to leave the real difficulty un- 
touched. The real difficulty is that the ''prospect'' does 
not yet so desire the insurance that in his selection of 
things upon the purchase of which he will lay out his 
funds, this is preferred. 

It is manifestly a simpler m.atter to make one thing 
desired more than to make the many things with which 
he is comparing it desired less. 

Singularly enough^ most agents are too much afraid 
of becoming bores to their "prospects." There is a very 
real reason for fearing this if one remains when the 
"prospect" is not interested. But the man who is argu- 
ing for delay or opposing objections is interested, and 
there is no occasion for leaving while the agent continues 
to be capable of adding to the desirability of purchasing 
in the mind of the "prospect." In fact, to go is both 
against the agent's interest and the surest way to make 
him a bore to that man in the long run; for he will neces- 
sarily have to come back and pick up the matter again 
and again, perhaps at times when the "prospect" does 
not feel so favorable. To do this and remain for never so 
short a time is to be a bore; while to remain for never so 



8 Things Agents Should Know. 

long a time when the man is interested is not to be a 
bore. 

Meanwhile, as the objections and pleas for delay are 
piled up, deftly add fuel to the flames by increasing the 
desirability of purchasing. The very objections help 
you; for men incline most to want those things which are 
difficult for them to get. 



The Agent. 9 

THE GENERAL AGENT. 

To paraphrase a somewhat grandiloquent stanza: 

"Who is the general agent? Who is he: 
Whom every canvasser would wish to be?" 

The name ''general agent" has ever an attractive sound 
in the ear of an insurance agent. It speaks of ''things 
hoped for'' and of things aspired to with laudable ambi- 
tion. 

Catering to this natural fondness for sounding titles, 
the life insurance companies have given the expression 
"general agent" a definition that is wholly out of har- 
mony with its legal meaning. 

A consequence of this is the inconsistency that many 
men are called general agents by their companies when 
by the legal definition they are not such and have no such 
powers; while, on the contrary, thousands who are not 
called general agents are such in the eyes of the law and 
have the powers of general agents. 

The late John A. Finch, in that invaluable little treatise 
The Insurance Agent; His Rights, Ditties and Liabilities, 
thus defines "general agent:" "A general agent has 
power to do, in the making or continuing of contracts of in- 
surance, whatever the company, itself, at the home office 
might do; he is an agent with unlimited powers.'* 

By this definition, every recording agent in fire insur- 
ance or policy-writing agent, i, e,, agent who actually 



lo Things Agents Should Know. 

issues policies, in any line of insurance, is a general 
agent; and, indeed, that is precisely what the courts have 
uniformly held. 

Concerning this. Finch says: "The courts look not to 
what the company calls its agents, but rather to the 
powers with which he has been entrusted. Thus a great 
number of agents are termed general agents by the 
courts who are not so termed or considered by the com- 
pany." 

Not only, then, are many agents really general agents 
according to law who are not called so; but many who 
are called general agents are not such within the mean- 
ing of the legal definition of the word. 

For instance, the average general agent in life insur- 
ance has no more power in the matter of making con- 
tracts of insurance than has the merest solicitor. 

Moreover, there may be found men in fire insurance 
with the title "general agent/' whose duties are confined 
to supervision and to adjustment of losses, and who 
are not, as a matter of fact, empowered to make contracts 
of insurance at all. 

Every agent ought to clearly understand the distinc- 
tion between what insurance men mean by the term when 
they use it and what the courts mean by it when they em- 
ploy it. 



The Agent. II 

TWO THINGS TO CONSIDER. 

Most men when they enter the agency field in insur- 
ance do so without knowing much about any company, 
and still less about companies other than the one with 
which they connect themselves. One result of this is 
that they do not know whether other companies pay a 
larger or smaller commission than the company which 
employs them. 

It is, therefore, nearly always with a shock and a sense 
of ill-treatment that an agent learns that another com- 
pany is paying its agents a larger commission than he h 
receiving. Of course, this is not to be compared with 
the disappointment, when he learns, as agents sometimes 
do, that his own company is paying a higher commission 
to some agents for the same work which he is doing. 

Naturally if an agent finds his own company doing 
better for another agent than for himself, he is not merely 
impressed that his company is not always just, but he is 
also justified in seeking to remedy this wrong by request- 
ing as ample remuneration as has been accorded his 
fellows. 

But when he merely learns that higher commissions 
are paid by another company, it is not sure that he is 
justified, either in attempting to force his own company 
to pay such a commission or in connecting himself with 
the other company for the sake of a higher commission. 

For in selling insurance two things, at least, enter into 



12. Things Agents Should Kno'W, 

the question of what is most advantageous for the agent. 
There is the commission and there is the thing to be sold 
which will comprise all the elements that enter into the 
desirability of the policy offered. 

Manifestly an agent should be paid a higher commis- 
sion for selling a thing which is more difficult to sell. 
In fact, he m.ust be paid a higher commission; otherwise 
he could not afford to sell it. 

Moreover, the agent must take into account that, while 
some agents might make more money by working for the 
other company, he will have many things to learn and 
some to unlearn before he can hope to do as well with 
that company's policies as with those which he is accus- 
tomed to handle. 

Therefore, the agent who learns that an agent of 
another company is receiving a higher commission than 
himself, needs to ponder whether there be not good rea- 
son for the payment of this higher commission in the 
greater difficulty of selling the policies of that company. 
He will usually find that for all phenomena there are 
sufficient causes, and that for the phenomenon of the 
higher commission there is the sufficient cause of a hard 
thing to sell. 



The Agent. 13 



LOCAL REPUTE OF A COMPANY. 

The best company for the agent is the company for 
which he can sell insurance in his own locality with the 
least effort. Of course he should not be willing tO' rep- 
resent such a company unless it is a good one, purveying 
reliable protection. But if it is, it is not necessarily the 
agent's duty to put forth the efforts of an educator to 
win the people from their preferences, even though he 
may think that he knows a company which will be better 
for them; especially if, as is usually the case, he is not go- 
ing to be paid for this extra service by an increased 
commission. 

No doubt if all the companies in the United States 
were submitted to a single expert of the most disinter- 
ested character, he would be able to select one or more, 
which, on account of certain excellencies, should be pre- 
ferred to all others. His discrimination, however, would 
have to be very fine indeed, and the most delicate shades 
of distinction would need to be made. It would really 
be of no service to anybody. If it should result in the de- 
struction of the companies which are not the best, it 
would also probably result in a distinct lowering of the 
standard in the best companies, because of the enormous 
increase of their business and the consequent pressure 
upon them. 

It would be equally possible for an expert to select out 
the best wood-chopper in the United States, but it would 



14 Things Agents Should Know, 

hardly be wise after having selected him to kill off all the 
inferior ones who, while they might not be the best, 
were at least able to perform the functions of their occu- 
pations satisfactorily in the main. 

Owing to acquaintance with their officers or stock- 
holders, or owing to the company's having done business 
in the community a long time and in a manner to please 
its patrons, it often happens that a certain company may 
be a favorite in a certain community. This is an ad- 
vantage which the agent is entitled to. It sensibly di- 
minishes the friction and facilitates his labors. 

If, because the companies which are already favorites 
in the community are in other agencies, an agent is com- 
pelled to represent some other company, he should, if 
possible^ select it with care, choosing that company 
V which possesses elements that he could popularize in that 
neighborhood. vJFor intance, if it offers something dif- 
ferent from the policy of the companies already repre- 
sented, the agent may make a point of this. -The first 
settlements of losses by his company will have an impor- 
tance to him which no subsequent adjustment will ever 
possess. Therefore he should take care to avoid selecting 
a company which would be likely to make unnecessary 
difficulties or delays in adjustments. It should be his aim 
to have a company which possesses all those excellencies 
that have made popular the company already represented 
there and which may, in addition, be able to offer some 
distinct advantage. 



The Agent, 15 

THE BEST COMPANY. 

The successful general agent of a certain life in- 
surance company has long printed on his envelopes, ''Ii 
is the best company/' following the name of the com- 
pany. 

He has been successful, and no doubt he attributes it 
to having early and late dinned into men's ears the old, 
old song that the company that he represents is the ''best 
company." 

His is an exaggeration of the usual case, which is bad 
enough. It is safe to say, too, that he probably suc- 
ceeded in spite of and not because of this practice. 

The enthusiasts are ever saying with emphasis that an 
agent must believe in his company without reservation, 
and must be confident that it is "the best." 

Now every honest agent must, of course^ believe that 
his company is honestly managed and that a man who in- 
sures in it will do a good thing. If he did not do this, 
he would not be an honest agent. 

Suppose all the agents were seeking to represent the 
one ''best company." Suppose also the "best company," 
serene in its consciousness that it was the best, should re- 
fuse to employ agents at all. Then should the agents go 
out of buiness? 

It follows that they should, if an agent ought to rep- 
resent none but the "best company;" and that, further- 
more, he should devote his leisure time, gratis, to recom- 



i6 Things Agents Should Know. 

mending his friends to insure in the aforesaid "best com- 
pany.'' 

That would be ridiculous, but it would be no more 
ridiculous than it is now for an agent to continually pre- 
tend that the company that he represents is the best. 
For we often see an agent crying up one company be- 
cause he now represents it and in a few months crying 
up another because he then represents that one, instead. 
There is no parallel to such a man except the case of a 
peripatetic huckster. 

An agent should represent a good company and none 
other. That means a secure company; though, if a cus- 
tomer buys with the knowledge that it is not as secure as 
some others and buys because the insurance is offered 
cheaper, the agent may be excused for representing a 
company which turns out not to be secure. The best 
clothing is the best, but there is a much larger quantity 
of cheaper grades sold. So also with the insurance. All 
that is required of an honest agent is that what he sells 
should be sold for what it is. 

Sometimes the "best company" is not the best for the 
agent to handle. This is clearly true if it pays no com- 
mission. It is quite as clearly true if it pays a so much 
smaller commission than all other companies, that in 
spite of the advantage in desirability the agent can make 
more money selling policies for the other company. 

Thus the "best company" for the agent may not 
always be the best company for the insured, but it ought 



The Agent. VJ 

always be a good company for the insured. Not much 
sympathy need be wasted on the man who gets 3 per 
cent, on an investment policy just because he fails to get 
4 per cent, which might have been had in another com- 
pany. 

For instance, a company may be the best for the agent 
because it is the best liked in a certain neighborhood. 
Of course, there may be other companies better for the 
insured, but what is the use of insisting on a man buying 
something better than that with which he is satisfied? 

The best company for the agent and the public at large 
may be the company which pays the best comrnission, 
for, being otherwise good, it will benefit more people. A 
small amount of industrial insurance, for instance, might 
be transacted at less expense than at present; but indus- 
trial insurance would never have reached the miUions of 
persons it now serves if the commissions required to suc- 
cessfully prosecute that work had not been paid. 



i8 Things Agents Should Know. \ 

READ YOUR AGENCY CONTRACT. 

Companies have sometimes printed in large letters on 
the front of their poHcies^ when folded up, the words 
*'Read your policy/' These w^ords are there, first, tO' pro- 
tect the company when agents may have misrepresented; 
and, second, to protect the insured when they may not 
understand precisely what they have bought. With an 
honest agent who understands the policy he is selling, 
this warning need not be heeded; and, in fact, it seldom 
is heeded, such is the confidence of mo-st persons who in- 
sure in the agent w^ho insures them. 

But the analogous warning might well be printed upon 
the reverse side of every agent's contract, where it would 
meet his eyes when the contract was folded up. Nothing 
is more common than for an agent to- sign a contract and 
then put his copy in his pocket without reading more 
than the statement of the commission which is to be paid 
him. Often much of the contract is printed, and he nat- 
urally supposes that, being a printed form, it is some- 
thing which the company insists upon in every case and, 
consequently, there would be no use disputing it. 

Even if this were true, he should still read the contract 
in order to know precisely what is required of him, so 
that there may be no mistake or misunderstanding. 
Companies generally have several of these forms, rang- 
ing from a very complex one, with many conditions and 
much tautology, to a very short and simple one. These 



The Agent. 19 

forms are, very largely, for the accommodation of the 
general agents who may wish to employ one or the other 
of them. Not only is it true that companies generally 
have a number of these forms, but it is also true that they 
will sometimes, if it be insisted upon, cancel or modify 
many of the printed clauses. In fact, it will usually be 
found upon investigation that some of their most impor- 
tant contracts have been made in a different manner, be- 
ing altogether written out and every word and line 
threshed out by the parties until it was certain there was 
no want of agreement. 

An agent^s contract is an exceedingly important thing 
to him. He should seek a contract whereby he can profit, 
which will secure to him the remuneration which he ex- 
pects and desires. He cannot afford to treat it as if all 
the conditions, except a few figures, are merely super- 
numerary clauses of no especial significance. They 
would not have been printed if they had not been be- 
lieved to be of importance. Therefore, every agent 
should carefully read his agency contract before he puts 
his name to it; and, if he has not done so, then he should 
read it as soon thereafter as possible and ask amend- 
ments or exceptions at the earliest moment, if desirable. 
Having read it and fully understood it, he should live up 
to it. 



20 Things Agents Should Know. 

FIRE INSURANCE AND LIFE INSURANCE SO- 
LICITING CONTRASTED. 

Soliciting for fire insurance and, in fact, for most 
classes of insurance and soliciting for life insurance have 
two things in common, viz., that they are both soliciting 
and that the thing offered for sale is in both cases insur- 
ance. 

The similarity ends at that point. The fact is that the 
agent who has been properly trained to carry on a fire 
insurance or a general insurance business has received a 
very unfortunate training if he afterwards adopts life in- 
surance soliciting as a profession. Vice versa, the life in- 
surance agent has received a iraining which does not fit 
him for other insurance business, although it may not so 
completely unfit him for it, because soliciting for fire in- 
surance or other lines of insurance is a much simpler 
affair than Hfe insurance soliciting, and much more like 
other branches of the salesman's art. 

It may be argued in opposition to this that recently 
some of the leading fire insurance agents and brokers 
have taken up life insurance as a branch of their work. 
It will be discovered, however, that in practically every 
case some person who is especially conversant with life 
insurance soliciting has been given charge of that 
branch of the business. The intention is that he shall be 
given access to the patrons of the firm, so that if possible 
their patronage as to life insurance may also be secured. 



The Agent, 21 

There have been cases of successful combination 
agencies though, even where one man did all the solicit- 
ing; but in every case it v^ill be found that this is because 
he has actually learned how to do both businesses and 
has not pursued the same methods in the o^ne as in the 
other. 

The fact is that the distinction in the method is vital 
and radical. In one case, viz., in soliciting for fire insur- 
ance and most other forms of insurance, the agent asks 
for the business as a personal favor, the insured and 
agent both knowing that as good companies and as satis- 
factory insurance in their way are to be had elsewhere. 
Possibly the agent may ofifer some inducement in the 
way of extension of credit, aid in adjustment of losses, 
especial attention to the patron's business or the like. 
But in any event it will be observed that these advantages 
are things which he personally affords. In fact, he so 
emphasizes his part in the matter that, as tO' fire insur- 
ance at least, men have come to insure with agents and 
not with companies as a general thing. In fact, they 
often do not even know the names of the companies in 
which they are insured, and seldom know their names be- 
fore the policies are delivered. So far has this gone that 
they accept the word of the agent that the insurance 
attaches without even asking in what companies the 

' agent has determined to place it. 

|l In life insurance, on the other hand, while of course 
the agent usually seeks to be on such terms with his ac- 



22 Things Agents Should Know, ■ j 

quaintances that they unconsciously prefer ^to do busi- 
ness with him, he must in presenting his plea avoid as 
far as possible even the remotest reference to himself. 
He should fix the attention of his ''prospect" upon the 
thing which he desires to sell him. He should bring 
his company into all the prominence possible, dis- 
playing the features of its policies and the advantages 
which it offers, and he should keep himself in the back- 
ground. 

The reason for this is plain. Where all things are 
equal and where the customer does not think that there 
is any advantage in trading at one place over trading at 
another, he gives to his preference as to persons the de- 
termination with which he shall trade. But, on the other 
hand, whenever he thinks that there is an advantage to 
be gained, or that there may be, in trading at one place 
over trading at another, he is at once suspicious when 
any effort is put forth to attract his patronage on grounds 
other than the superiority of what is offered him. In- 
deed, he is then very likely to resent an attempt to ob- 
tain his patronage through personal favor. Most men 
consider that it would indeed be a favor to inflict finan- 
cial loss upon one's self by taking a less desirable policy 
merely in order to patronize an acquaintance. 

The agent, therefore, should keep firmly in mind this 11 
distinction. There is nothing that will pay him better 
than to always remember that it is what he is offering 
and not himself that will interest and attract customers. 



The Agent. 23 

# SUCCESS THE AGENT'S. 

It cannot be too often said that an insurance agent is 
a salesman, and that his success as a salesman primarily 
rests with himself. To be sure it is an advantage to have 
a good company and favorable terms to offer, just as it is 
an advantage to other salesmen to have good and reliable 
wares to offer. But neither goods nor insurance will sell 
themselves; especially not insurance. And defects in a 
company or in the policies it offers may be offset with 
other advantages. 

No better illustration of this could be offered than the 
history of the most successful agency in casualty insur- 
ance. 

It had not been a successful agency until a certain 
young man took hold of it. In fact, although men who 
had succeeded elsewhere had tried to make it successful, 
they were unable to do so. 

Moreover, the company, the name of which is now 
synonymous with strength and prosperity, was then 
neither strong nor prosperous. Most men considered it 
ill-starred and its plans and ambitions ill-advised, while 
over against it as an adversary stood the greatest and 
most successful casualty company in the world. 

This young man had been representing in an impor- 
tant but subordinary capacity that larger and more suc- 
cessful company and had founded for himself a business 
which paid a good income. To change was more or less 



24 Things Agents Should Know, 

perilous; certainly not all his business could be trans- 
ferred. Possibly much of it could not; and if all could, 
the larger commission would be offset by the smaller 
premium on which it was computed. 

The principal if not the sole reason for changing was 
the control of territor)" and the independence which the 
new position gave him. He had to expect a smaller in- 
come for some time to come. 

With a company which had not yet secured universal 
confidence, with no more attractive policies to offer 
until he himself procured his company to adopt more 
liberal features, with the record of the failure of his 
predecessors in the field and the continual lack of pros- 
perity of the company in its other fields ever before him, 
he fought straight through without flinching. 

His proposition was that a good agent can sell what 
he has to sell, and that success, won without the company 
being able to claimi all the credit, is worth more to an 
agent than any other success. 



The Agent. 25 

THE AGENT WHO DOES NOT AGREE WITH 
HIS COMPANY. 

The agent who has views which are not in harmony 
with the views of its managers is sometimes a great 
nuisance; but if he is dignified and conducts himself 
properly, this O'Ught not to be the case. 

When he is a nuisance it is mainly because he does not 
know his place and keep it. 

Every man whO' has brains enough to have a view has 
a right to have it; and, if occasion calls for it, he also has 
a right to express his opinion in an inoffensive manner. 

A soliciting agent is not employed to dictate the policy 
to be adopted by his company. If he thinks that he is, 
he shoiuld stop and consider how many hours a day at 
that occupation would be required in order to afford him 
a livelihood, computed at the rates named in his com- 
mission contract. 

When he gets a clear idea of what it is necessary for 
him to do in order to earn a commission, he will come 
pretty near knowing for what purpose he was em- 
ployed. 

Notwithstanding which, an agent has a lively interest 
in the sort of policies his company offers for sale; for no- 
body can know better than he, who is in constant touch 
with the public, what objections the public brings to the 
policies he offers. 

Consequently, as has practically always been the case, 



I 



26 Things Agents Should Know. 

the agents of the companies are the originators of the 
new ideas which advance the cause of insurance. For 
this service they are rarely paid directly, and this follows 
from the nature of things, and is not tO' be complained 
about. It is enough if the idea is adopted, and certainly 
quite enough if the agent is given credit for originating 
it. Such is the certain fate of all volunteer service. 

But suppose the idea is not adopted and the company 
persists in its old plans; that is, of coairse, the more com- 
mon result. What is the agent to do, then? 

Of course, he can resign and seek more congenial 
connections. But the agent who has progressed enough 
to have these new ideas is likely to find that no company 
exactly squares with them. Moreover, companies which 
more nearly harmonize with his views may have no 
suitable vacancies or may be otherwise unavailable. 

If it is a matter of conscience, there is no alternative 
but to resign. But in most cases it is not. 

If not, then the agent should preserve a dignified 
attitude of disapproval and bide his time. If this course 
be pursued, conceding the right of men tO' differ with 
him, and especially the right of the company's officers 
to dictate its policy, he will hold the respect and con- 
fidence of all. 

Perhaps the most important question, however, is: 
How is he to deport himself in the field when the very 
objection is brought against the policy which he himself j 
has brought. ■ • . . . .... 



The Agent. Tj 

This position is embarrassing if an agent has not 
clearly before him the duties of his employment. And 
there is every temptation to conceal his own view and 
indulge in sophistry. But that is neither honest nor wise. 

One swallow does not make a summer, and no one vir- 
tue, aside from the certainty of protection, is preemi- 
nently valuable in a life insurance policy. 

Frank concessions of a deficiency, accompanied with 
a statement that one would be glad if it was otherwise, 
will usually stop all argument about it, and will make it 
possible to> turn attention to other things. 

An agent who was strongly in favor of cash values, 
but whoi was, notwithstanding that fact, selling the poli- 
cies of a company which did not offer liberal values, was 
asked once by an officer how he handled the matter in 
the field. I 

''When it is brought up," he replied, ''I simply con- 
cede both that cash values are desirable, and that I 
favor them, believing that the returns to persisting 
policyholders would be nearly or quite as good. I then 
say that unfortunately the majority of the authorities are 
against me, and the company has not seen fit to- trust my 
judgment instead of that of others who are supposed to 
be more competent. I say that, when they do' come to 
that point, no' doubt I will be president instead of an 
agent; at present I can only defer to their judgment, 
knowing that they are acting in the best interests, as 
they see them, of the insured who compQs.Q ttie CQoapany. 



1 



28 Things Agents Should Know. 

Then I talk of things in which I claim cuperiority for the 
policy which I wish to sell." 

This course had won in the field, and it won in the 
home office to the extent at least of removing any sus- 
picion of that agent's loyalty. 



The Agent, 29 

QUARREL NOT WITH THE CONDITIONS OF 
YOUR OCCUPATION. 

There is an old saying that ''no- true artist quarrels 
with the conditions of his art/' This saying has a very 
apt application to the occupation of soliciting insurance. 

The idea is that the true artist, instead of quarreling 
with the conditions of his art which present difficulties 
for him to overcome and obstacles to surmount, sets out 
to excel by overcoming these difficulties and surmount- 
ing these obstacles. Precisely in his ability thus to excel 
does he pride himself; that is what constitutes him an 
artist. He realizes that, if no difficulties existed, then 
the veriest dullard could do' as well as he. 

In a very true sense, therefore, the difficulties imposed 
by the conditions of his art make the artist. 

One of the commonest experiences of tho'se who have 
to do with agents for insurance is to find them chafing at 
the conditions of their occupation. They consider that 
the difficulties are disheartening, and that they are en- 
titled to complain of those conditions. 

That they are not entitled to so complain is sufficiently 
demonstrated by the fact that it is futile to complain. No 
agent will succeed in paying household expenses for a 
very long period of time from the proceeds of comimis- 
sions paid him for complaining. 

What the agent is paid for is for surmounting these 
obstacles and triumphing over these conditions. 



30 Things Agents Should Know. 

To achieve this triumph, it will not do for the agent 
to close his eyes to the difficulties. That would be as fatal 
as the other course. He should face them and appreciate 
them fairly. The point of difference is that he should 
not, however, face them with a sinking heart nor with 
the sense of approaching defeat. 

The difficulties can be surmounted, for they have been 
surmounted. It is a very true proverb that "what man 
has done, man can do.'' 

If an agent would be successful in his vocation, 
whether it was adopted of choice or necessity, he must, 
like the artist, refuse to quarrel with its conditions. The 
conditions are there. They will not change except as the 
agent changes them. The very thing upon which he 
must exercise his skill is to succeed in spite of these 
conditions. 



The Agent. 31 

BE LOYAL. 

Everybody respects and admires a loyal person who 
is not easily shaken from his allegiance and who' remains 
firm at his post. Nowhere is this truer than in insur- 
ance. An agent who- for a large number of years has 
represented one company comes to have a hold upon the 
respect of all who know him which no person whO' has 
repeatedly changed companies can ordinarily possess. 
The mere fact that he continues is evidence that his ser- 
vices have been satisfactory to his company, and is also 
evidence that his company has been satisfactory to him. 
Both of these in themselves are good arguments why 
men should deal with him: (i), because he is evidently 
an honest and reliable man in the opinion of his com- 
pany, and (2), because his company is evidently an hon- 
est and reliable company in his opinion. Rogues oc- 
casionally are able to get along harmoniously for a con- 
siderable time, but this is so infrequent that the mere fact 
that an agent remains with a good company for a long 
time is usually accepted as creditable tO' both of them^ 

It is hard toi say too' much in favor of loyalty. The 
agent who looks within himself for the cause of his ill- 
success, and who does not expect all perfections on the 
part of his company, is the wise agent. The agent who 
supposes that his ill-success is the fault of what he is 
selling commonly deceives himiself, and he is an individ- 
ual who is likely to be dissatisfied with any other connec- 



32 Things Agents Should Knozv. 

tion. An agent will do well to set before himself the 
purpose of being loyal to his company. There should 
be moderation in his loyalty. Nothing is more painful 
than to find an agent immolating himself, as it were, and 

y certainly nothing is surer not to be rewarded. Com- 
panies expect an agent to serve his own self-interest. 
The motive power of the salesman is his desire to earn 
a livelihood. When an agent from a mere sentiment of 
loyalty deliberately refuses to better his condition, the 
opportunity opened to him being an honorable one, he 
will not be considered, a hero by his company, but a fool- 
ish man. Evidence of the truth of this can be found in 
the experiences of many persons througho'Ut the country. 

I Contrariwise, his former employers will not fail to- re- 
spect him if, after doing his full duty by them, he leaves 
them for another employment because the emoluments 
are higher. 

The thing is that this should never be lightly done, and 
very rarely indeed should it be done, not because the 
agent being satisfied with his former connection is led 
to change on account of a superior attraction ofifered him, 
but because he is actually dissatisfied with his former 
connection. Usually when an agent is actually dissatis- 
fied it is the plain truth that the thing with which he 
should be dissatisfied is himself. A good agent should 
be able to make a livelihood working for any sound com- 
pany, and he should certainly be loyal to that company 
until an opportunity presenting larger returns or better 
opportunities to himself offers itself. 



The Agent, 33 

GIVING CREDIT FOR PREMIUMS. 

In one respect insurance companies place their agents 
in precisely the position of retail dealers, except that the 
agent does not need to purchase or pay for the goods 
before he sells them. The companies require the agent 
to give credits, if at all, on his own responsibility, and to 
pay to the company the net premium, in cash. De- 
partures from this rule are rare and only by special 
stipulations. 

The giving of credit in insurance is, so far as the 
United States is concerned, almost universal. It is the 
exception instead of the rule that a fire insurance pre- 
mium is paid on the day when the policy is issued and 
delivered. In many other lines of insurance this is also 
true. In; life insurance alone is there any attempt to 
enforce the provisions of the policy to the eflfect that 
premiums must be paid on a certain day. Even this 
rule of the companies is, as a matter of fact, more 
honored in the average collecting agency by the breach 
thaB by the observance. 

There can be little doubt that thousands of policies are 
renewed every year without complaining because the re- 
new^al receipt was on hand before the policy expired, and 
because no- bill for the premium was presented until the 
renewal had already been in force for thirty days or miore. 
Under such circumstances the insured feels under con- 
siderable obligation tO' accept the renewal and to pay the 



34 Things Agents Should Know. 

premium, while, if approached before the expiration, and 
especially if payment had then been demanded, he might 
have obeyed an inclination tO' let the insurance expire or 
tO) go elsewhere for renewal. 

The extension of credit in insurance in a similar in- 
foonal rnanner really permeates all classes of insurance 
agents, whatever may nominally be the rules of the com- 
panies. There is, of course, danger in the agent's de- 
parting from those rules; and he is a very unwise man 
indeed who grants credits beyond his ability tO' make 
prompt settlements with his company. Within this 
limitation, however, a company is as little likely to quar- 
rel with an agent for accommodating his customer as it 
is with any other means by which he popularizes himself 
and increases his business. 



The Agent. 35 

TO WHOM SHOULD CHECKS BE DRAWN? 

The question frequently arises in soliciting insurance: 
To whom should checks be drawn? This question is not 
easy of solution. Most cominonly, agents settle it by 
having the check drawn either to themselves individually 
or tO' themselves as agents. 

In doing so, they follow as a precedent the practice in 
regard toi notes when taken for insurance. Recognizing 
that they are to pay cash to the company, they naturally 
incline to have checks as well as notes drawn to them- 
selves. 

No Houbt this is oftentimes an advantage where the 
customer may be by this means impressed with the re- 
sponsibility of the agent as well as the reliability of the 
company; but it is very easy to overestimate this ad- 
vantage. The fact is that, in general, the life insurance 
agent will do well to so conduct himself in every respect 
that the customer will not think of him at all in the 
transaction. 

This is a very delicate matter. It may often happen 
that an applicant will hesitate to give a check drawn to 
the agent individually, when he would not for a moment 
hesitate to give one drawn to the company. Not every 
business man is familiar with the fact that payment to 
an authorized agent is payment to his company. More- 
over, men do not really think about these things; they 
merely feel, and the man who feels indisposed to draw 



36 Things Agents Should Know, 

such a check may in consequence withdraw from the 
matter entirely without assigning any reason. Frequently 
it takes very little to turn a man aside from closing. 

Surely, nothing but a good effect can possibly be 
created by causing checks to be drawn directly in favor 
of the company. This is especially true when payment 
in advance is suggested. A man is not likely tO' insure 
in a company unless he has confidence enough to en- 
trust it with his check when he signs the application. It 
may be a very different thing to ask him to have con- 
fidence enough in the agent to give him the check or 
money, for it has more than once happened that this has 
been embarrassing to- all parties, the agent laying out his 
commission before notified that the risk is rejected and 
that the money must be returned. 

To be sure, a company ought, in the interest of the in- 
surance business in general, to promptly return the 
money, even though the agent cannot at once make it 
good; but companies do not always act thus promptly 
and for the good of the general business. They often 
consider that it is easier to force the agent to make it 
good now than later when it will be an old story. More- 
over, the agent who has thus got himself into trouble 
is likely to conceal the facts from the company as long 
as possible, often going to the extreme of throwing hin>- 
self upon the mercy of the applicant. 

Of course, these things do not happen very often, but 
they do not need to happen often to have the effect of 

\ 



The Agent, 37 

dissuading many persons from giving checks payable to 
the agent before the policy is delivered. Besides most 
cautious men foresee that such things might happen, 
even though they have never known them to. 

Agents should understand that the same prohibition 
which applies to the granting of credits on behalf of the 
company does not apply to taking checks payable to 
the company. Accepting a check is not granting credit. 
If a check is not paid, there has been no payment at all, 
and the policy or receipt is void. On the contrary, the 
mere acceptance of a note or granting credit constitutes 
a payment for the thing purchased, and, having once 
done this, the agent must look to the collection of the 
debt as due him personally, he becoming liable to the 
company the same as if cash had been collected. 

On this account, notes should never be taken in favor 
of the company, unless by its authority. Moreover, no 
authority is given an agent, by the mere fact of being 
an agent, to indorse and discount notes in the name of the 
company. On the contrary, however, every agent in the 
absence of a special prohibition has a right tO' endorse 
and collect checks which are payable to the company and 
to forward the proceeds. 

It follows, therefore, that the agent does not change 
the situation materially by taking checks payable to the 
company rather than to himself. He is in equally as 
good position for prompt collection as before. If the un- 
derstanding is that he is to deduct his commission in any 



38 Things Agents Should Know, 

settlement with the company, he may still deposit the 
checks, endorsing them with the name of the company 
by himself as agent and may then forward only the net 
amount due the company. 

For a variety of reasons, however, except in large 
agencies, this old style of doing business is passing out 
and there is being subtituted the plan of turning all set- 
tlements over to the company, and either waiting for a 
check for the commission or drawing upon the company 
for the same. By this the endorsement which is upon the 
check when it again reaches the drawer is that of the 
home office. 

Where there are no instructions concerning to whom 
these checks shoujid be drawn, the agent should follow 
what he believes to be the line of least resistance. If he 
is operating in the small territory where he is generally 
known and where his credit is unimpeachable, it may 
be to his advantage to emphasize his part in the business 
by having settlement run to him; but as to most agents 
there is little doubt that the contrary course is advisable. 
There is this to be urged for it in all cases, viz., that no- 
body is likely to hesitate to draw his check in favor of 
the company, while many may have hesitated to do so in 
favor of the agent, to the agent's disadTantage and with- 
out his ever having known what hurt him. 



The Agent. 39 

CERTIFIED CHECKS. 

An insurance agent is glad, generally, to get an appli- 
cation and happier if he gets a check with it. He is not 
disposed to consider that the case is open after that. Of 
course every agent understands that the signer can notify 
his bank not to pay a check which he has given, and that 
recourse is entirely on the signer of the check and not 
on the bank. But that does not often happen. 

Sometimes agents may take certified checks, either be- 
cause they fear that the check may not be good, or be- 
cause, for some reason, they expect to hold the check for 
some time and do not desire to take any risk about it. 
Sometimes, too, the insured or appljfcant offers to have 
the check certified, and it may happen that, after an un- 
certified check has been received, the agent will stop at 
the bank and have it certified, which is not an unreason- 
able thing to do, although it may ofifend. 

When he has a certified check in his pocket, the agent 
is likely to feel very safe; and, indeed, he has good rea- 
son for that feeling. But it is possible that he may feel 
too safe, especially if he considers that the mere fact of 
certification will prevent the ^igner of the check from 
asking his bank not to pay it, if he comes to the conclu- 
sion that it was obtained by fraudulent misrepresenta- 
tions. 

' The fact is that, while the courts have not agreed on 
the subject, it has been held generally that for a bank to 



40 Things Agents Should Know. 

certify a check is merely for it to say that the money Is 
there and will be held until the check is presented by 
some person duly entitled to collect the money. The 
whole question of whether the person has the right to 
collect the money is left open. The right is maintained, 
generally, before the check reaches the bank, through 
the confidence of the endorsers each in the previous en- 
dorser; but if the signer of the check appears at the bank 
and gives evidence that it has been obtained through 
false representations the bank may refuse to pay it, 
which, in commercial practice, throws each endorser 
back on the endorser before him, until the person who 
gave the check has been reached. 

It has been contended by some that certifying a check 
is the same thing as accepting a draft or signing a note, 
and that, when a certified check has passed into the hands 
of a third party, it becomes a negotiable paper in inno- 
cent hands and must be paid anyhow. There is much to 
uphold that view; but it has not been adopted always by 
the courts. A check and a note, or acceptance, are not 
quite analogous. One is a promise to pay and the other 
an order to pay, and the latter does not, even when certi- 
fied, become a promise to pay. Therefore, the agent 
should not rest too securely on his confidence in the cer- 
tainty of the payment of a check that has been certified. 



The Agent. 41 

DONT MIX BANK ACCOUNTS. 

Often in the instructions to agents by an insurance 
company there is a section warning the agent that he 
must not deposit the company's money to his personal 
credit. The purpose of this is to prevent his getting the 
company's funds mixed up in his individual bank ac- 
count. 

If an agent deposits money to the company's credit in 
a bank approved and selected by it, he will not be held 
responsible legally for its loss if the bank fails; in fact, it 
is doubtful whether he would be so held even though the 
company had not approved the selection if he had liter- 
ally complied with its instructions to deposit the money 
to the company's credit. It would also be probably suf- 
ficient if he were to deposit the money in his own name 
as agent, especially if the funds of no other company 
were kept in the same account. 

But to bring that about is not the purpose of com- 
panies in warning agents against depositing the money 
in their individual accounts. It is merely an incidental 
advantage to the agent. There would ordinarily be no 
especial objection to an agent's keeping the money in his 
individual account if it were not that the agent's account 
is likely to be a discounting 2iS well as a checking account 
i That is to say, if he does an active business he may find 
it desirable to use his bank in order to carry the credits. 

Now, of course, no company would desire to prevent 



42 Things Agents Should Know. 

its agent from doing this, for the discounting manifestly 
tends to increase the company's business. No company, 
therefore, would desire to deprive the agent of the ad- 
vantage which carrying a good balance in the bank gives 
him in negotiating discounts ; but a company might very 
naturally object to guaranteeing the agent's discounts. 

Still, that is the very thing that it does when its money 
is deposited to the credit of the agent's individual ac- 
counT, and when it is therefore subject to be drawn 
against to make good the agent's endorsement of paper 
which he may have discounted. 

There are two reasons why a bank might desire a dis- 
counting customer to have a good balance. One is in 
order that it might have on hand in that customer's ac- 
count a very large part of the money agreed to be ad- 
vanced. This enables the bank to earn interest on money 
which is never out of its possession. The control of the 
company's money gives an agent this standing, and in 
the view of the banker is likely to entitle him to favors. 
This is true whether the money is to his individual credit 
or is deposited in another account, subject to his control. 

The other purpose of bankers in desiring that the bor- 
rowing customer carry a large balance is that the 
bank may be able to at once recoup itself in part or 
whole for any discount which may not be collected when 
due. This, if the company's money is credited in a sepa • 
rate account, the bank will not be able to do out of the 
company's funds. The agent who runs any risk what- 



The Agent. 43 

ever of these trust funds being applied in such a manner 
is very unwise. There is even a possibiHty that, although 
he may not have intended it, he may be held to be guilty 
of malversation of funds. 

There is but one safe way, and that is to keep separate 
bank accounts and see to it that they are not confused. 



44 Things Agents Should Know. 

DONT CONFUSE YOUR ACCOUNTS. 

One of the lurking dangers which an agent must avoid 
is the confusion of his accounts. There are many things 
in his work that seem to constitute him a retail dealer in 
goods, sold to him on credit, instead of a mere agent. 
And therein lies peril. 

The companies pretty generally refuse to give credit to 
the insured at all. If any credit is given, the agent must 
be responsible for it. 

Moreover, pretty generally^ as a matter of convenience 
the agent has a limited time within which he may report. 
Usually this report is not due oftener than once a month. 
In some cases on new business even two months or 
longer are allowed. When this is done, it is unquestion- 
ably with the idea that in tha*^ space of time the agent 
may be able to reduce his outstanding accounts to cash 
and thus to report in full. 

But in this combination lies a peculiar peril for the en- 
terprising agent, owing to the fact that before reports are 
due for certain business money may have been collected 
on other business which will not be due under the report 
system for some time to come. 

Thus suppose a report is now due, including a good- 
sized policy, issued two months ago, but the premium for 
which remains unpaid. The company will allow no fur- 
ther time to the agent, who ought to take up the policy 
if possible, or enforce collection, or report uncollected, or 



The Agent. 45 

do some other act in the premises which will be all right 
in the eyes of the manager or company. 

Make sure that it is all right. 

The temptation is to take money that is lying Ln bank 
for a future report, money collected on policies which do 
not need to be reported now, and to apply it to pay this 
premium which the optimistic agent of course expects 
to come in before the money thus applied will be needed 
to cover the premium from which it was really derived. 

Is this embezzlement if it does not succeed? 

If it is, it is embezzlement whether it succeeds or not, 
the misappropriation consisting in the application of the 
money and not in the failure to replace it. 

Perhaps it is technically not embezzlement; but it is a 
sad mistake at best, and a most dangerous proceeding, 
which has wrecked many a promising agent. 

Pay your principal, the company, or its manager or 
general agent, the proper part of the premium out of 
the proceeds of that very premium, or else out of funds 
belonging to yourself which you are willing to advance 
for your customer. 



46 Things Agents Should Know. 

CARE IN WRITING APPLICATIONS. 

Nothing is more inexcusable in life insurance than 
carelessness in writing applications. 

What would you think of an attorney who was em- 
ployed to draw up an important contract, because it was 
supj)osed that he possessed special qualifications for so 
doing, and who, notwithstanding, drew it carelessly? 

The agent who writes an application carelessly is 
guilty of the same thing. His failure to correctly tran- 
scribe the answers of the applicant will be fatal in many 
cases to the defense of his company against claims which 
ought not to be paid. 

The disposition of the courts to make an application 
written by an agent of the company so far the company's 
act that it is to be construed strictly against the company 
was at one time so strong that so high an authority as 
Nathan Willey, the eminent actuary and author, recom- 
mended that the agent refuse in all cases to fill out the 
application. This disposition has been so much relaxed 
that at this time all agents fill out applications, and sel- 
dom is there any prejudice to the interest of the company 
arising therefrom, unless it is shown that the agent ac- 
tually did not put down the answers of the applicant. 

On his own account the agent has every reason to be 
careful in filling out an application, because his careless- 
ness may cause delay in issuing the policy or even the 
rejection of the application. 



The Agent. 47 

On the policyholder's account there is as much reason 
to be careful. In most cases the application is made a 
warranty and the basis for the policy; in all other cases 
it is held to contain the representations made tO' secure 
the policy. It is a most serious matter if the careless- 
ness of an agent causes an applicant to appear to make 
a misrepresentation when he has no such intention. This 
is especially serious when it is taken into account that the 
applicant, being dead when a claim is made, is not able 
to prove what he actually did reply to the questions. 



48 Things Agents Should Know. 

IRREGULAR INCOMES OF AGENTS. 

The most discouraging thing about some lines of in- 
surance soliciting, as life insurance especially, is the ir- 
regularity of the income. 

Of course, after some years, if an agent holds a re- 
newal contract, this is overcome. But in the cases of 
only too many agents, as the experience of companies 
abundantly proves, as soon as this desirable situation is 
attained the agent relaxes as a solicitor. 

In other words, it has been found that tO' spur an agent 
on to his best work there must be the need for the com- 
mission. Of course, it does not follow that a small as- 
sured income is a bad thing or that a guaranty need dis- 
courage an agent from steady and hard work. Possibly 
even a salary would work all right in many cases, pro- 
vided always thatSts continuance depended upon the 
current production of the agent. 

But an irregular income must ordinarily be the char- 
acteristic of the business under present conditions. And 
the expectation of winning a prize in the lottery must 
continue to be the chief incentive to persistent work. 

The commission which an agent pockets is really a 
reward, not merely for the effort put forth by him to pro- 
cure that application, but also for the work which hasj 
seemed to be so fruitless in the past. Like the company 
itself, he has to deal in averages^ losing here and gain- 
ing there. 



The Agent. 49 

This is unavoidable. 

What an agent can do to make it endurable is to care- 
fully hold his expenditures down so that they will aver- 
age below what his income is pretty certain to be. It is 
a good policy for him to stick to the system of cash pur- 
chases so far as it can be done, and when the larger com- 
missions are harvested seek to husband his funds and to 
preserve a bank balance. 

The trouble with many agents is that they are too san- 
guine. A single large commission sets them up amaz- 
ingly. They immediately see other large commissions 
which are sure to fall into their hands at once. Their 
expenditures are increased, their scale of living is at once 
raised and the little ctore is soon exhausted. Then, 
under a permanently increased expense, the poor agent, 
disappointed and discouraged, takes up his drudgery 
again. ^ 

There is but one remedy, and that is: When your big 
commission comes in, resolutely hold down expenses. 

This takes pluck. 

There is generally the pressure of manifold acutely fdt 
wants in one's family — wants which are now the more 
acute since some of them at least can at last be supplied. 

But do it! 

The scale of expenditure in a family should not be in- 

\ creased until it is certain that the average income is to be 

increased. If the large commission is anything but a 

windfall, if it means that the agent has struck a better 



50 Things Agents Should Know. 

gait, then a few weeks' or months' delay will prove this, 
and cautiously and guardedly the scale of living may be 
increased. 

More agents have been ruined by a single big com- 
j mission than by any other single cause. 



I 



The Agent. 51 



AVOID OBLIGATIONS. 

The life insurance agent is engaged in a crusade 
wherein men's sense of responsibilities is mainly appealed 
to. It is his place to make men feel and fulfill their re- 
sponsilibities, and not to shirk them. 

If an agent were by nature disposed to shirk his own 
responsibilities, it would seem that his mission would in 
the long run make this impossible for him. Conse- 
quently, he ought to be unusually careful not to assume 
responsibilities which it would be impossible or awkward 
to fulfill. 

This is a very important thing for the agent to weigh 
and consider. The exigencies of soliciting require that 
he should take advantage of everything that he may, 
legitimately, in order to bring his wares to men's atten- 
tion in such a manner that they are tempted to buy. 
This means that he must often bring the personal in- 
fluence of other people to bear upon them. He may thus 
very easily incur an obligation which he might not find 
it convenient or desirable to fulfill. 

The mistake of young men is that they do not under- 
stand the significance of the old text: "It is more blessed 
to give than to receive." They are likely to be touched 
unduly by kindness and particularly by kind offers of 
assistance and cooperation which do not at the time cost 
anything. This is particularly true if things have been 



52 Things Agents Should Know. ^ 

going hard with a life insurance agent. It may appear! 
to him that these offers of aid are really godsends. { 

But, in the first place, if the agent is to become a self- 
reliant man at all, he must get along with as little assist- 
ance from other persons as possible, excepting where he 
is in position to immediately repay them for their trouble. 
Despite all the objections which are brought against it, 
the direct payment of ''helpers" by commission is better 
by far for the agent than to leave himself under a moral 
obligation to theni. The debt which is paid may be for- 
gotten. Both parties are, or ought to be, satisfied. But 
a debt of this sort, which is to be returned in kind, can- 
not be estimated exactly, but is very likely to cost dearly 
in after years. 

Another mistake of young men is that they do not take 
into account the personality of those from whom they 
accept favors. In fact they are so likely to receive the 
advances with joy and thanksgiving that they never think 
at all of whether the person is one to whoni they ought 
to put themselves under obligation. The fact is that be- 
fore one accepts the favor at all, or even gives the op- 
portunity for it to be offered, he ought to carefully con- 
sider that very matter. He ought to be chary about ac- 
cepting favors anyhow, and far more particular about the 
persons from whom he does accept them than he need ' 
be concerning the persons whom he himself favors. 

It has always been considered beneath a man's dig- 
nity to borrow money from his valet, or from his waiter, 



The Agent. S3 

or his bootblack. The reasons ere obvious. The ob- 
ligation, if there be any, should run the other way. It 
is not so easy to see that there are many other persons 
concerning whose social status there are no such in- 
vidious and artificial distinctions, from whom he ought 
to be equally unwilling to accept favors. 

Take, for instance, the spendthrift who lives beyond 
his means. It will only be a matter of a short time be- 
fore he will be living upon the charity of his friends and 
acquaintances. What could be more dangerous than for 
an agent who hopes to have a successful future to place 
himself under moral obligations to such a man? 

Then there is just the contrary type of men, the grasp- 
ing, farsighted, selfish, merciless individual, who is sure 
to collect a very large interest upon the obligation in the 
form of exacting much more in return than he has given. 
Since a moral obligation cannot be measured in money, 
it will often happen that one of those long-headed in- 
dividuals will cleverly put an agent to great trouble for 
his benefit in return for a very small favor. A conscien- 
tious agent, whose sense of moral responsibilities is 
sharp, will find it a very delicate matter to refuse to sub- 
mit to his exactions. 

Moreover, think of the mere shame of being reminded 
some time that one has permitted himself to be put under 
•obligation to a person who is plainly his inferior. 



Twisting and Rebating. 



DONT TWIST policies. 

There are two reasons why an agent should not at- 
tempt to twist poHcies of insurance, that is, to induce a 
man to give up a policy which he already has and substi- 
tute another for it. One reason is that it is not honest, 
and the other reason is that it is, practically always, un- 
profitable to the agent. 

It is usually not honest to do this because it is almost 
alw^ays not to the advantage of the insured to make the 
change. The agent, therefore;, in such cases is not doing 
the customer a service, but an injury. No man should 
be willing to make a living by injuring his fellows, and il 
he does do so he cannot be considered an honest man. 

Honest Sancho Panza said, ''Honesty is the best 
poHcy," a maxim which has been often quoted. In no 
possible case is it more applicable than this. 

Success is truly finding the line of least resistance and* 
moving along it. Thus it is easy to pour water into an 
empty bowl, but rather difficult to put more water into a 

54 



Twisting and Rebating. 55 

bowl that IS full and have it all stay there. Thus, too, 
water runs down hill, but has to be lifted up hill. 

The agent who attempts to sell his policy by depreci- 
ating the poHcy of another company is undertaking two 
tasks for one commission, viz., to induce the customer 
to give up what he has, and induce him to buy something 
to take its place. 

For the latter of these things only is the agent paid. 
If he succeeds in disturbing the old policy without sub- 
stituting his own, which often happens, he will plainly 
see that he is doing a large amount of work that must be 
unrewarded. 

To be sure he ought to be rewarded by a kick, and his 
ill-success serves him right. But that does not alter the 
fact that he does not get the reward which he expected. 

Suppose, now, that he succeeds in placing his own 
policy, which will not happen nearly so often as that he 
will succeed in destroying the other policy; he then re- 
ceives a commission which on the whole it would have 
been easier for him to have earned, either with this same 
customer or another, by devoting his whole energies to 
selling what he has to offer instead of devoting a large 
part of his time to destroying the customer's faith in what 
he has. 

Agents should be students of that art which may be 
best characterized as "conservation of energy.'' 

Take fifty or a hundred cases, so as to make an aver- 
age. The agent will find that, in working these cases, 



56 Things Agents Should Know, 

supposing all of them to be already insured, he will get 
more commissions for the time put in if he has pursued 
just the contrary course, namely, helped the insured to 
feel that they have done well, and then proceeded to build 
upon the foundation of their satisfaction a desire for 
more insurance on the plan which he offers. Thus the 
satisfaction of the insured with what he has becomes the 
foundation for a desire for something more and some- 
thing better. 

It will sometimes happen that in the course of this 
procedure the customer will become convinced that he 
ought to surrender the old and take more of the new\ 
This the agent should mildly depreciate. If pressed for 
his advice upon the matter he should give it honestly, 
saying what he himself would do. Then, if the customer 
does change, as will sometimes happen, the agent need 
feel-no sense of responsibility. The customer has of his 
own motion surrendered the old policy and the agent has 
merely sold the new. 



Twisting and Rebating. 57 

ROWS ABOUT TWISTING. 

In the seventies, when life insurance companies in the 
United States were passing through the crucible, all sorts 
of things were done which nowadays are denounced, at 
least, if not avoided entirely. The trouble was that more 
than half the life insurance companies of the country 
were in a failing condition, and their only hope often was 
to diminish their Habilities by twisting policies from one 
form to another or to escape the liabilities in whole, or in 
part, by making an arrangement with another company 
to furnish it a list of the policyholders, so that it could 
do the twisting. 

The four or five companies that were swallowed up in 
the Universal reached an apparent state of solvency in 
that manner. They had some kind of an understanding 
as to reinsurance with that company, without the privity 
and participation in the contract, however, of the policy- 
holders; but the real work was to twist the policies into 
the Universal directly. 

But it was mainly in the matter of twisting policies 
within the company that the period was pecuHar. Pre- 
vious to that time the most popular plan had been the 
*'loan note'' plan^ providing for taking the note of the 
applicant for from 30 per cent to 50 per cent, of the pre- 
mium — depending upon the company and plan — each 
year, it having been pretended that the dividends would 
take care of the notes with interest. Of course, that was 



58 Things Agents Should Know, 

precisely what the dividends did not do; and, conse- 
quently, there was an accumulation of indebtedness, 
coupled with increasing cost, counting the interest on the 
notes. That meant increasing cost and decreasing insur- 
ance — a double discouragement to continuance. 

Some of the companies tried to get rid of the policies, 
or as many of them as possible, by twisting them over 
into other plans. The fairy tales about the old plan had 
prepared the insured to believe that their reserves were 
diminished little, if at all, by the notes. The new fairy 
tales about the substituted policies were reassuring also; 
but now and then a poHcyholder would awaken to the 
fact that he got little or nothing for his old poHcy, or that 
the new one was not as represented, and then there was 
music. 

The howl about twisting was so loud that the legisla- 
ture probed some companies on account of their conduct 
in the matter. For instance, early in 1879 a New York 
company was put under investigation by the assembly, 
the principal charge being that it had twisted a policy 
allowing only a first premium of $395.80 on a new poHcy 
as a surrender value of policies, with reserves of $1,- 
186.65. The subject went to the courts, the insured 
thinking that he had been swindled. The company 
showed that there were notes for $804.09, including in- 
terest, outstanding against the policies, leaving only 
$382.56, or $13.24 less than was allowed. 

The company in its report to the legislature disavowed 



II 



' Twisting and Rebating. 59 

"twisting," saying: *'No such system, technically or 
otherwise, known as 'twisting' has been adopted or prac- 
ticed by said company since its organization in 1850 up 
to the present date/' The statement suffered somewhat 
because of this further defence: "The policyholder re- 
ceived the full equivalent for his former policy, and the 
company received the lawful, regular and usual equiva- 
lent for the new policy and no more. Such changes of 
policies have been in approved use for nearly a hundred 
ycarsJ" The italics are the company's. 



(Vt 



60 ly^J Things Agents Should Know, 

TWISTING BY WHOLESALE IN THE OLD 

DAYS. 

One of the most successful New York city agents, 
who, although he looks about thirty-five, is really nearer 
fifty-five, and who began the business when he was very 
young, and so has had a deal of experience, tells a num- 
ber of stories apropos of twisting in the old days. 

If twisting from one regular company to another can 
be successfully attempted in these last years of the nine- 
teenth century, when practically all regular companies 
are above suspicion as to financial solvency, it may be 
imagined what glorious opportunities there were for the 
practice of this art in the '70's, when so many of the reg- 
ular companies were failing and when the reputation of 
not even the strongest of them was unassailable. 

The agent in question tells of a visit to a country town 
in New York on behalf of a company which stood very 
high then and stands equally high now in insurance 
circles. He was sent there because the agent of the com- 
pany at that point had failed to deliver a policy for which 
he had taken an application, the failure being occasioned 
by the intervention of the agent of another company. 
Of course the young special went there for the purpose 
of making a fight, and he proceeded to do so. 

It so happened that the other company was just going 
through a housecleaning during which there developed 
several unpleasant financial scandals. The agent made 



Twisting and Rebating. 6i 

good use of this, succeeded in delivering his policy/ and 
in fact in increasing the amount, and got a settlement for 
it all. 

He then by a ruse procured a list of the insured in the 
rival company and learned all that he could about them. 
Then he went back to the city and obtained a sufficient 
number of copies of a leading paper, which had published 
the details of the recent scandal. One copy he caused to 
be mailed to each of the patrons of the other company. 

Then he went, post haste, back to the country town 
and began his work. The failures which had taken place 
in life insurance had caused the people to be easily panic- 
stricken in that regard. Fortunately, there was nothing 
against his company at that moment before the pubHc; 
consequently he was able to override the arguments of 
his adversaries and he succeeded in taking every policy 
away from the rival company, most of the insured not 
even waiting until their policies in the other company 
expired. 

This was all done in a few days. Of course the rival 
company put in a complaint at the home office of his 
company. Its complaint was received with every cour- 
tesy and a promise was given to notify the special to de- 
sist, which notice was prepared and sent out, a copy no 
doubt being furnished the other company; but that copy 
of course failed to contain a few words written after it 
was made, alongside the president's signature. The 
words read: "Get all the business you can." 



62 Things Agents Should Know. 

It would appear from this that companies were not so 
sincere in their efforts to put down twisting in those days 
as they doubtless are nowadays. 



, 



' Twisting and Rebating. 63 

CARRY A COPY WITH YOU. 

Just before the expiration of his term of office, Presi- 
dent Thomas H. Bowles, of the National Life Under- 
writers' Association, sent out a pamphlet, entitled 
"Twisting/' In this pamphlet were many excellent ar- 
guments why agents should desist from the practice, 
which is, whatever may be said for it, certainly in all 
cases a thing which embitters competition between 
agents and between companies. 

The pamphlet contained also a number of letters from 
officers of companies denouncing the practice and pledg- 
ing their support to efiforts to repress it. Most of these 
letters give reasons for the faith which was in the officers, 
setting forth in plain language why the practice was not 
toi be commended. 

Every well-intentioned agent ought, as a matter of 
self-protection, to carry one of these documents with him 
or to have it at hand when needed. It has been found 
that not only are the arguments valuable to offset an at- 
tack on a policy which has been placed ; but also* that the 
opinions of the officers come in handy as arguments 
ad personam. 

An instance of this is reported from Cincinnati, where 
an agent of a certain company undertook to twist a 
policyholder out of another company, defending his be- 
havior on the ground that it would be to the financial 
benefit of the policyholder to make a change. The con- 



64 Things Agents Should Know. 

sternation of this agent and his complete defeat may be 
imagined when he was confronted by the opinion of one 
of the chief officers of his own company that the prac- 
tice was demorahzing and that no advantage that coald 
be offered by another company could ordinarily offset 
the loiss because of surrendering a policy on which pre- 
miums had been paid. 



Twisting and Rebating. 65 

IS TAKING A NOTE WITHOUT INTEREST 

REBATING. 

The question has sometimes arisen whether an agent 
by giving credit to the insured and charging no interest 
on the money advanced for the same is not in fact 
rebating. 

Probably the correct answer is twofold. Morally he 
may be; legally he is not. 

Morally there can be no doubt that the agent is offer- 
ing this man a valuable advantage over patrons who 
pay their premiums in cash. Certainly in all cases where 
this advantage is offered for the purpose of permitting 
the insured tO' gain the interest, the transaction is really. 
a discrimination. It may, in fact, in this sense be a re- 
bate to take a note with interest if the interest is smaller 
than would ordinarily be charged. 

But there are many exceptions to this sweeping rule, 
for in very many cases the accommodation of credit is 
given the insured without thought of the interest, but 
merely because the insured cannot pay the premium at 
once conveniently. This sort of credit is that which a 
merchant gives his customers. It is the almost invariable 
rule of retail trade that interest ought not to be charged 
on such credits. Where, therefore, the credit is given as 
,a matter of accommodation and the interest is not con- 
sidered by either party, it would appear that rebating had 
not been practiced. 



66 Things Agents Should Know. 

Legally there is very little likelihood that a charge of 
rebating could lie. The anti-discrimination laws require 
that an agent shall collect the full premium. They do' not 
require that the agent shall collect more than the full 
premium, whether in the form of interest or otherwise. 
Collecting interest, and what amount of interest, if any, 
is to be collected, are matters for agreement between the 
parties. 



Canvassing Material. 



INTRODUCTIONS— FROM WHOM AND HOW? 

It is, of course, less embarrassing to meet a man 
through an introduction than to- be compelled to ap- 
proach him without one; though the importance of an 
introduction may easily be exaggerated in business mat- 
ters since men are so much accustomed to do' business 
with anybody with whom it is profitable to deal. 

If no stress be placed upon the fact that one is intro- 
duced, and if the introduction come about in a perfectly 
informal manner and be not apparently for the purpose 
of soliciting business, it is utterly indifferent who does 
the introducing, except to the degree that the influence 
of the social standing of the introducer may be expected 
to impress the person whom the agent thus meets. 

Thus, for instance, if an agent, pretending to be no- 
body in particular, should be introduced to> Mr. Jones by 
his butler and shoiuld be recognized repeatedly by Mr. 
Jones in a kindly manner, he might find that his ac- 

67 



68 Things Agents Should Know, 

quaintance with Jones would one day enable him to 
approach him on the business of insurance. 

But to have the butler introduce you for the purpose 
of approaching him on insurance would be ridiculous. 
The trouble is that such introductions inevitably carry 
with them the idea that the person introducing has ac- 
quired a wisdom which the person addressed has not. 
Introductions of this sort to be efifective must, therefore, 
come from men whose qualifications to judge of insur- 
ance matters are acknowledged to be superior by the 
persons addressed. 

Even then one must be careful. Men resent the tone 
of superiority. It is on that account that it is nearlyl 
always well to preface a formal introduction, especiallyl 
if in writing, with the remark: ''I asked Mr. Smith tol 
introduce me.'' 

This helps to remove the possibility of irritation and 
still leaves you recommended by Smith. 

In a viva voce introduction, the least said the better, 
An informal "Mr. Jones, I want you to know Mr. Robin- 
son" is a thousand times better than any long lingo, 
however complimentary to Robinson and his company^ 
Robinson should be prepared to do the talking. 

If this is true of znva voce introductions which the 
agent cannot control, it is still more clearly true of writ- 
ten introductions, the form of which he generally can 
modify. 

The best introduction is the least formal introduction. 



Canvassing Material, 69 

This may be set down as the rule to which there are but 
few exceptions. The business man who writes on his 
card 'Tntroducing Mr. Robinson'' and then writes the 
name of the person to whom Robinson is to be intro- 
duced, has given all the pledge that Robinson and his 
company are all right that he could give in a small book. 
Presumably he would not have introduced him at all if 
he did not consider them) both all right. 

The beauty of this simple form of introduction lies in 
the fact that it may be made use of as the agent may in 
his discretion see fit. It may become a forgotten and un- 
important incident, or if it is apparent that what the in- 
troducer thinks greatly influences the ^'prospect" all 
necessary emphasis may be put upon it. 

It is the best of all because itself the most neutral. 



/O Things Agents Should Know. 



USE OF REFERENCES. 



There was a dignity about the old system of soliciting 
insurance which is sometimes lacking nowadays. Thus, 
for instance, it was held out to the person addressed that 
it was quite a serious matter whether the company would 
accept him or not. He must undergo a severe medical 
examination, and he must, among other things, give 
good references. 

The former had its terrors. Although the examination 
now is much stricter than in the old days, its rigor should 
not be especially dwelt upon; indeed, it should be treated 
as a slight thing requiring but a short time and almost 
certain to prove satisfactory. There were disadvantages, 
no doubt, in the old system which frightened a man be- 
fore he was in the presence of the examiner. f j 

The idea that he must give references was not a bad 
one. It created an impression that if he were accepted 11 
he would be classed as a select person. Nowadays, of 
course, companies look men up more thoroughly than; 
they did formerly, and instead of asking for references, 
they make private inquiries through commercial agen 
cies or obtain reports from special confidential repre 
sentatives or from other sources. 

There is, however, one advantage lost by no longer] 
requiring the name of an "intimate friend." The old sys- 
tem enabled the agent to go directly to this intimate 
friend with a good excuse for calling on him, and natu- 



ii 



Canvassing Material. 71 

rally the subject of life insurance was brought up in the 
most favorable manner. Such an introduction was valu- 
able, because the procurement of many applications is 
directly traceable thereto. 

Although the old system has been done away with, the 
agent can, if he handles the matter rightly, make good 
use of the persons whom he insures, by securing the privi- 
lege of using their names for references, both for himself 
and his company. He will not have the same excuse for 
calling upon the friends of applicants and the matter will 
not come up in an indirect manner, but, on the other 
hand, the agent has the advantage of knowing that no 
man will grant an interview unless he really wishes to 
talk insurance 

Persons he has insured, and who are satisfied with the 
insurance he has sold them, are the best references an 
agent can have. 



7^ Things Agents Should Know. 

USING THE NAMES OF PATRONS. 

The names of persons who carry insurance in a com- 
pany, and especially of persons who have insured with 
the agent presenting the list, may be used to advantage 
if done with delicacy. 

In everything of this sort which is intended to in- 
fluence the prospect by stating to him what other persons 
have done, it must be remembered that nobody likes to 
stand in the position of doing a thing just because others 
have done it before him. We are all following the bell- 
wether, but none of us like to confess it, even to our- 
selves. 

It is grossly offensive to most men to have the fact 
that somebody else has done a thing quoted to them as 
an actual reason that they should do likewise. The hook 
must be well concealed by tempting bait. 

Therefore, it is well for one to introduce the names, 
if possible, in an incidental manner, and not as if he 
expected the "prospect" approached to follow the ex- 
amples of the persons named and purchase because 
they did. 

Thus, suppose a clever agent during the conversation 
in calling attention to some particular feature were to 
say that Mr. So and So said that he took the policy largely 
on account of that feature, or should state concerning an- 
other patron that he was influenced to insure because of 
this or that argument. In such cases it will, generally, 



Canvassing Material. 73 

be found that the ''prospect" of his own motion inquires 
concerning these persons, if he has any special confidence 
in their judgment, and that he is influenced far more by 
one or two such instances than he might be by a long 
list of names. 

The exhibition of the list is always a delicate matter. 
There is seldom a way in which it can be presented with- 
out appearing to be definitely for the purpose of influ- 
encing the ''prospect.'' One of the principal advantages 
of the now generally discarded "local board plan'' w^as 
that the list was shown quite as an incident, it being a 
thing which the applicant would, of course, sign if he 
went in. Thus he could look at the names without their 
being thrust under his no'se offensively. 

The agent should study ways of presenting the names 
of his patrons or the names of men whoi are insured in 
his company. It will be greatly tO' his advantage if he 
can memorize and quote something which these men 
have said about the company or as to what influenced 
them to insure. Such verbal quotations will be found, 
ordinarily, to be better even than signed letters of com- 
mendation, and certainly far better than a mere printed 
or copied list of names. 



74 Things Agents Should Know* 

''OVER THEIR OWN SIGNATURES." 

Under this exceedingly clever title one of the large 
life insurance companies has for several years been ac- 
customed to publish in convenient and compact form 
letters concerning the company and its policies from 
various prominent and influential men in different parts 
of the country. 

Originally these letters were distributed in separate 
sheets and frequently they were published in fac-simile. 
Later the idea of a volume was adopted and the fac- 
simile was dropped, with the exception that letterheads 
and signatures were still retained. 

The volum.e has been found by far the most useful 
canvassing document the agents of the company in ques- 
tion have ever possessed. It is also a style of canvassing 
literature which every good company can employ. 

One advantage of its volume form is that it is some- 
thing which an agent shows, and not something which , 
he leaves; and that leads up to a thing which it is de- | 
sired to talk about in this connection. * 

The manner of using such material is important. If 
it were thrust upon the "proispect's" attention without 
preliminaries, there would be a possibility, if not a prob- 
ability, of offense; since to do so would be to convey the 
idea that the person addressed ought to be directly in- 
fluenced by the persons writing. 

The clever and adroit agent will take no such risk. 



Canvassing Material 75' 

He will familiarize himself with the most apt expres- 
sions of those whose letters are in the book; and he will 
in his own argument quote from them verbally, refer- 
ring to the book, not for the quotation originally, but to 
verify its accuracy. 

Thus the ^'prospect'' is led to look at the book with- 
out feeling that an effort is being made to influence him 
to insure or to surrender his right of private judgment 
because these persons, being presumably better in- 
formed, have already judged. 

When such a book has been introduced in this manner 
it is often surprising and amusing to see with what avid- 
ity the unsuspecting ''prospect" will examine the various 
letters and permit himself to be willingly though uncon- 
sciously influenced by them. Of course, the agent may 
properly, if deftly and with great caution, direct the in- 
terested ''pro'spect'' in his examination of the letters; but 
there is reason for great care tO' avoid destroying the 
altogether favorable impression already created. 

Remember always that men are to be persuaded, and 
not driven. 



76 Things Agents Should Know. 

HAVE YOUR APPLICATION READY. 

The air of an agent should be that of a man who is 
ready to do business. 

Of course timid men are sometimes frightened away, 
and over-sensitive men are sometimes offended by too 
prompt presentation of an application. 

Where an application is a large sheet, imposing if not 
alarming in appearance, it sometimes happens that an 
agent cannot produce it until a man has definitely stated 
that he will take the insurance without appearing to be 
forcing matters. 

But in these days most of the applications are small. 
The fact is coming to be understood that the smaller they 
are the better. The agent may, therefore, have no hesi- 
tation about getting the same out where they can be 
seen; in fact, it is safe to say that the application should 
appear synchronously with the proposition for the in- 
surance. 

Let there be no mistake about it that the agent is 
ready, quite ready, altogether ready to proceed with the 
business. 

This is not eagerness. Eagerness must be avoided. 
This should be so managed that it merely indicates that 
one is prepared. Then it impresses men that it is busi- 
ness, simply business; as, in fact, being precisely what 
they would desire their own salesmen to do. 

When men are undecided, it means that they are 



Canvassing Material. , yy 

tempted to act. The temptation is stronger, if in con- 
crete form. The possibility of acting is then constantly 
before them. 

Therein lies the advantage in having the application 
ready. 



yS Things Agefits Should Know. 

THE BINDING RECEIPT. 

The man whc coiisiders that a thing is done, is far less 
Hkely tO' repudiate it than the man who considers that the 
transaction is not complete. Therefore the binding 
receipt. 

Moreover, it is the right thing. If a man applies for 
insurance in good faith, is acceptable to the company and 
a policy is or would be issued, it is a thing which will not 
be forgiven a life insurance company in any community 
if it refuses tO' pay because he dies before the policy is 
delivered. 

But if no binding receipt is given, the company will be 
likely to date the policy on the day of issue and under 
its instructions the agent is not tO' deliver it except during 
the lifetime and good health of the applicant. 

Consequently, for the interest of all parties, an agent 
ought to make free use of the binding receipt. 

This may be done by producing it as soon as the ap- 
plication is signed and explaining the case. If the ap- 
plicant cannot or will not pay cash on the spot, exchange 
the binding receipt for his note if he is responsible, or 
even leave it without taking more than a mere memo- 
randum that he owes you the money and will pay it when 
you deliver the policy. 

Even in cases where there remains the least bit of un- 
certainty about his taking the policy and paying for it, 
it is sometimes wise to issue a binding receipt anyhow; 



Canvassing Material, 79 

the customer appreciates it and feels under the greater 
obligation to accept the policy. 

But before making these uses of the receipt, an agent 
should make sure that upon the return of the receipt and 
policy the company will release him from liability. Gen- 
erally a company will dO' so, the privilege not being 
abused, for companies desire agents to bind their busi- 
ness and will overlook too great zeal in that regard. 

If the general agent or manager demands it, an agent 
should always be ready to turn over whatever settle- 
ment he gets in return for a binding receipt, subject to 
the payment of his commission as soon as the policy 
comes, if cash was paid, or as soon as collected other- 
wise. 

In soliciting life insurance there are three necessary 
things — the rate-book, the application and the binding 
receipt; and, verily, the greatest of these is the binding 
receipt. 

The only difficulty ever encountered is when for a 
good reason the applicant wishes to be released; an 
honest agent and an honest company will find ways to re- 
lease him. A customer who is dissatisfied on the start 
is not worth having. 



8o Things Agents Should Know. 

COMPETITIVE LITERATURE. 

Only a few years ago the shelves of the supply rooms 
of every life insurance company groaned under stacks of 
poisoned arrows, which were dignified by the name of 
competitive literature. 

The other day the greatest life insurance company of 
the world announced that henceforth its agents were not 
to be supplied with anything in the form of literature that 
mentioned in an unfavorable manner competing com- 
panies or instituted comparisons of any sort or nature 
with them. 

Between these two stages lie, not many years, to be 
sure, but a complete though gradual change of policy. 
Almost all the life insurance companies have completely 
eschewed the use of literature which in any way reflects 
upon reputable competitors. 

Let not the agent, failing to realize the uselessness of 
this mode of competition and its withering effect upon 
his own prospects, do of his own motion that which this 
company now refuses to do. The agent who attempts to 
build himself up by tearing his competitor down will find 
that he is employing weapons which will, like certain 
firearms, do more execution at the breech than at the 
muzzle. 

Agents are concerned in the general good name of life 
insurance companies. It is wiser even to keep still when 
a company is bad than it is to malign a company that is 









Canvassing Material. 8l 

good. In fact, the agent who exposes a really bad com- 
pany will discover that he is performing the thankless 
task of enlightening men concerning a thing about which 
they would prefer to be ignorant. 

It is public-spirited, when the occasion actually de- 
mands it, but it don't pay. Much less then will it pay to 
discredit companies that should command confidence. 



82 Things Agents Should Know. 

ILLUSTRATIONS AND ESTIMATES. 

The day of estimates in life insurance is nearly past, 
but few of the companies now being unable to point to 
actual results as the best of all illustrations. 

These illustratioins are, of course, of past results. The 
present conditions are not the same as past conditions. 
Future conditions are not likely to be the same as past 
conditions. Consequently, these results should not be 
understood or be held out tO' be estimates of future re- 
sults. 

This being true, it may be asked: Of what use are they, 
then? An agent canvasses a mian to buy a policy, the 
results of which lie in the future; what purpose is served 
by showing him past results? 

This question may seem a "poser/' but it is really 
very easy to answer it. 

In practice it will be found that the applicant is better 
satisfied with a sight of the actual results than with any 
estimate, however carefully made. The cause for this is 
not far to seek. This illustration of actual results enables 
him to make his own estimate. 

He reasons, more or less consciously, about as follows: i 
If I had taken such a policy twenty years ago, and nowf 
were toi receive this return, would I be satisfied with it,) 
in comparison with returns upon other investments? If I 
so, I will be satisfied twenty years fromi now, becausci 






'. ' Canvassing Material. 83 

the returns, while not the same as these now before me, 
will average about the same in comparison with returns 
on other investments. 

If he does not seem to catch that idea, an agent may 
profitably suggest it to him. Usually it will be found 
that some such train of reasoning has enabled the ''pros- 
pect" to judge of the desirability of purchasing. 

This system gives the agent a slight advantage, growing 
out of the inveterate tendency of men to compare present 
results with present conditioins. That is, the policy- 
holder will compare the returns with the interest money 
pays now, and not usually with the interest which it has 
paid throughout the period. 

This is hardly more than fair though, for it will be 
found that if estimates are presented instead of illustra- 
tions, he will do the same thing tO' the agent's disad- 
vantage. 

For instance, an option of letting an endowment 
policy's proceeds stand at 4 per cent, interest throughout 
one's after-lifetime, with interest paid annually, offered 
by a certain reliable company, never proved very at- 
tractive, simply because men could get 4 per cent, now 
and did not realize the value of an option guaranteeing it 
for from ten to fifty or more years from now. 

If an estimate based upon present conditions is cor- 
rectly and conservatively made, it is really more likely 
to approximate future results than is the estimate made 
by the "prospect" from an inspection of actual results; 



84 



Things Agents Should Know. 



because present conditions are nearer to probable future 
conditions than are past conditions. 

The trouble is that the exigencies of competition make 
it impossible, as a distinguished actuary once wrote, for 
estimates which are really conservative to be of much use 
in the field. In view of which fact it is best to furnish 
facts and let the ''prospect'' estimate for himself. 



Canvassing Material. 85 

ARE ILLUSTRATIONS NECESSARY? 

What a relief life insurance agents would experience 
if some way of handling the business could be devised 
that would render the use of illustrations unnecessary! 
Would it be impracticable to do so? 

Probably it would. Men love the concrete. They are 
wanting in imagination. 

In theory, a man ought to go into a venture when 
he sees that it is a good thing. In fact, most men de- 
mand that some illustration be given of how good a 
thing it is likely to be. 

This complicates the work of the promoter — every life 
insurance agent is a promoter — and makes it more diffi- 
cult. It also inclines to extravagant estimates. The 
average business man discounts these estimates a good 
deal; but it never occurs to him that his demand for the 
concrete is the cause of his being fuddled. 

Suppose, for instance, an agent were to approach a 
business man with the following life insurance prop- 
osition : 

"You are now forty years of age. For our lowest- 
priced level premium policy we will charge you $332 for 
$10,000. In addition to furnishing you the protection, 
this being a mutual company, we will make it an invest- 
ment for you. We will take your premium, add interest 
to it at the end of the year, deduct your share of the com- 
pany's losses and expenses, add in the new premium 



86" Things Agents Should Know. 

and keep up this accumulation for twenty years for your 
benefit if you survive that period. How much there will 
be, neither you nor I can foretell ; but we know that there 
will be all that careful management can accumulate, in- 
terest being what it will be on sound investments." 

What reason is there that the agent cannot close on 
this basis, without showing another figure, it being pre- 
mised that he has, of course, explained other taking 
features? 

There is no reason except that men lack imagination 
and that they are not close reasoners — not strictly logical. 
The fact is that no amount of illustration by figures can 
make that policy worth a cent more than this simple ex- 
planation makes it. 

But the concrete is needed. And its proper place is 
not to displace this explanation, or some other explana- 
tion equally simple, but to supplement it. Thus, the agent 
may continue: 

'Tf you would like to see how you would have been 
pleased, had you taken such a policy and did you have 
it now maturing as an investment, the following figures 
will illustrate what the company is able to return.'' 

Such use of illustrations of actual results or of esti- 
mates will be found quite as effective with most men as 
to place great stress upon estimates and it will have the 
added advantage that the illustration is not the main 
thing. 

The illustration ought never to be the main thing. 



Canvassing Material. 87 

To make it so is like the course of some of the pictorial 
journals which publish a picture and give a little text 
to illustrate it, instead of telling something worth read- 
ing and illustrating it with appropriate pictures. 

Illustrations are necessary, or at least desirable, but 
they are not the whole story. 



88 Things Agents Should Know. 



ANNUAL DIVIDEND ESTIMATES. 

Agents of companies which do not sell insurance on 
the deferred or accumulative dividend plan sometimes 
point the finger of scorn at agents of companies which 
do sell that sort of insurance, on account of the estimates. 

This is more or less funny when one looks at it right. 
Bad estimates are bad estimates and one ought to be 
ashamed of them. But annual dividend policies are sold 
either by the use of illustrations of present dividends or 
by estimating future dividends, or both, quite as deferred 
dividend insurance is. 

Moreover, this has always been true. And there have 
been as many men disappointed at the results of annual 
dividend policies as ever have been at the results of de- 
ferred dividend policies. And for the same reason and 
through the operation of the same conditions, viz., the 
falling of interest and the increase of expenses. 

What agent is there to be fogund who' has not had the 
experience of running upon a man with an ordinary life 
policy, perchance in his own company, who complains 
about the greatly reduced premium that he has still to 
pay, because the agent assured him that the dividends 
would wipe the premium out in less than 20 years? ^■ 

Do you suppose that man is any the less disappointed 
just because he has a good thing? Not a bit of it; he is 
still compelled to pay when he did not expect to have to 



Canvassing Material. 89 

pay; and the holder of a deferred dividend policy will ex- 
cuse a smaller result than he expected much quicker than 
this policyholder will this disappointment. For he is re- 
minded of it every time the premium notice comes. 

Historically, the disappointment of policyholders with 
annual dividend estimates was the proximate cause of 
the introduction of deferred dividend plans. The public 
had lost its taste for regular annual dividend life in- 
surance and the business of companies was on the de- 
cline in consequence, when the deferred dividend plans, 
with their attractive features and not more than one dis- 
appointment at most instead of a fresh one every year, 
were put forward and redeemed the waning popularity 
of regular life insurance. 

The use of any sort of estimates should be sparing; 
that they must be used at all is to be deplored. But an- 
nual dividend estimates have as much to answer for in 
life insurance history as deferred dividend estimates. 

Take, for instance, those cases of estimating that divi- 
dends wo'uld take care of premium notes. The failure 
of this estimate has caused a very remarkable thing to 
appear in life insurance, viz., a decreasing insurance with 
an increasing price. The insurance is decreasing on ac- 
count of the augmenting indebtedness and the annual 
payment increasing because of the interest on this in- 
debtedness. 

One encounter with the holder of such a policy or any 
of his family is enough to convince any agent that er- 



90 Things Agents Should Know. 

roneous estimates of annual dividends have done their 
share to discredit life insurance. 

Avoid estimates and especially avoid pretending that 
they are certain to be realized. But also avoid throwing 
stones at your competitor; you may find that you live 
in a glass house. 



Canvassing Material. < ^ ' 9^ 

UNFULFILLED GLOOMY PREDICTIONS. 

There lingers to this day among many the view that 
companies which have not returned so large dividends 
as were estimated by them and expected by the insured 
must inevitably experience a declining popularity. This 
view is held yet, notwithstanding that the companies 
which transact annually the largest new business are ob- 
taining that business by exhibiting the very results which 
disappointed their former policyholders. 

The anomaly is explained by the circumstance that 
most of the persons who are insuring now are not the 
persons who were disappointed because they were not 
the persons who insured twenty years ago. The figures 
shown to them are large enough, so that they feel that 
if they were receiving such returns they would not be 
disappointed. But this is only partly true. Many of the 
persons who purchased policies fifteen or twenty years 
ago, policies that are now maturing, do buy new insur« 
ance of the same companies just as soon as they receive 
their money. In fact, it is so nearly universal for them 
to do so that agents consider it a particularly valuable 
privilege to solicit them. They count on being able to 
overcome any disappointment on the part of a policy- 
holder and obtain his application, and his influence in 
procuring applications from others. They accomplish this 
through the fact that practically every sensible person 
understands that there has been a gr^a.t change of condi^ 



92 Things Agents Should Know. 

tions since the policies were issued, and does not really 
expect such returns as were promised. 

From these considerations it has followed that the ex- 
pectations of persons who supposed that life insurance 
would go out of fashion because estimates were not ful- 
filled have been quite as disappointed as have been 
those persons who insured on faith in the estimates. 
It is exceedingly interesting, therefore, to recall the 
following dismal and mistaken prophecy indulged in 
by the famous London actuary, Samuel Brown, in 
1849, in his introduction to his book entitled A Few 
Thoughts on Commission, etc., in Life Assurance: "The 
author believes that it is no less important to the com- 
panies themselves that the public should moderate their 
expectations of receiving large profits to which they have 
been so led^ or have so habituated themselves to look, 
as the necessary result of joining a society for the assur- 
ance of life. If even om great instance of failure in the 
accomplishment of these promises or in the fulfilment of 
these expectations should occur the consequences might 
be disastrous in the extreme." 



Canvassing Material. 93 

THE FIRST "HANDY GUIDE." 

No doubt many agents suppose that the publication of 
the premium rates and other tables and of the policy con- 
ditions of all companies which come into competition in 
a certain field is a thing of recent and American inven- 
tion. No doubt we have done much to perfect and adapt 
the idea; but it is an old one, and was put in practice 
before life insurance agents were recognized to exist. 

They did exist, but surreptitiously only as yet, the 
companies paying persons for '^influencing" business. 

The earliest prototype of the modern ''Handy Guide** 
is to be found in the last pages of a learned tome, entitled 
The Doctrine of Life Annuities and Assurances, by Francis 
Baily, which was published in 1813. 

Baily wrote what was up to that time the most com- 
plete mathematical work on life insurance, a book which 
seems very queer now, with its old notation and the ab- 
sence of commutation columns and short cuts. 

He seems to have been himself the prototype of our 
modern metropolitan "consulting actuary," a genus of 
geniuses which has multiplied since his day. And he ap- 
pears also to have considered that it was part of his pro- 
fessional duties to give "advice on insurance" to the pub- 
lic as well as to those who sought him professionally. 

As a part of his scheme of counsel he included in his 
book a chapter on "The London Assurance Companies." 
If "comiparisons are odious" this author was at no pains 



94 Things Agents Should Know. 

to render them more agreeable. In the first page of his 
chapter he says of the Amicable Society^ which was the 
oldest of all: ''Its original plan was in many instances 
exceedingly defective, absurd and inequitable; and al- 
though it has since undergone several partial reforms it 
is still liable to many objections/' 

It will be observed that this olden compiler had not 
learned the art of self-suppression which is now so neces- 
sary to success in this "Handy Guide'' business, where 
facts and not opinions are presented. 

The Amicable was, in effect, an assessment society, the 
members paying into it a fixed amount each year, and 
the society dividing the total thus paid in among the 
''nominees of such members as happened to die within 
the year." The society guaranteed that this should yield 
at least £200 to each member, which guaranty was pro- 
tected by a fund, accumulated from what were really "en- 
trance fees." 

The Royal Exchange Assurance Company and the 
London Assurance Company are two others which re- 
ceived particular mention. The Royal Exchange gets 
hit about as hard as the Amicable^ as witnesses the follow- 
ing excerpt: "These rates have certainly not been de- 
duced from any observations heretofore published; 
neither do they agree with any probable rate of human 
miortality, but seem to have been formed at random with- 
out any regard to the true principles of the science." 

The distinguished actuary appears not to have been 



Canvassing Material. 95 

wholly free from partiality, whether justified or not, as is 
evidenced both by the manner and the matter of the fol- 
lowing concerning the Equitable Society of London: "It 
is truly deserving the name which it has assumed, it be- 
ing certainly one of the most equitable, as well as the mo«t 
important of all the societies that have ever been formed 
for the purpose of granting assurances on lives." 

Some ten other companies receive attention in this 
old book, but the foregoing is enough to illustrate in 
what spirit it was written. Certainly great improvements 
have been made in that respect. 



Canvassing. 



THE BEST WAY TO APPROACH A MAN. 

Some years ago one of the cleverest agency managers 
in the Hfe insurance business had a tremendous sym- 
posium on the subject of ''How to Get at a Man/' All 
the agents of this company throughout the country were 
invited to contribute to this symposium, and hundreds 
of them did so. At the meetings of the agents the sub- 
ject was also discussed, and great benefit to that agency 
force was considered to have resulted from this discus- 
sion. 

In the course of this series it is hoped to give many 
anecdotes illustrating the ways by which men who are 
difficult to approach have been led to grant audiences to 
life insurance men. 

The present article will be devoted to some small con- 
sideration of the general principles which should guide 
an agent in this matter. 1| 

In the first place he should not forget that he is a sales- 



man, and that it is the thing he sells and not his person- 
ality that he desires to present. The most that should be 

96 



Canvassing, 97 

expected of his personality is that it should not be ob- 
trusive. His manner should be neutral, avoiding both 
offense and over-anxiety to please. 

More agents err by being over-anxious to please than 
by rudeness. This is so true that the smirk of the sales- 
man has been proverbial since the days of Confucius. 
Life insurance agents are less prone to this vice than the 
salesmen behind counters; still it is common among 
them. 

An agent should be impressed not merely, and, indeed, 
not so much, by his own dignity as with the dignity, 
worth and importance of the thing which he offers. 

Therefore all seeking for audiences by concealing one's 
business is to be deprecated. It is rarely successful, 
and even when successful is discreditable. 

Perhaps the best method of all to approach a man is 
that which was always adopted by one of the most suc- 
cessful personal solicitors in the world, whose prowess 
as a field man won for him a vice-presidency of his com- 
pany. His system consisted in simply presenting him- 
self to the person whom he wished to address and mak- 
ing his business known. 

At the same time there are helps which should not be 
disregarded by most agents, since not all of them are 
able by their own force of character to make the impor- 
tance of their mission known and appreciated. 

No method of approaching a man, however, should 
depart from this simple and natural plan moi^e than the 



gS Things Agents Should Know. 

absolute necessities of the case require. An introduction, 
whether personal or by letter, should be always regarded 
as a mere incident, and as soon as it is over should be 
forgotten and not again be referred to. Strange as it 
may seem to some, it is usually better, because more 
dignified and less likely to wound the self-esteem of the 
person addressed, for the agent presenting a letter of in- 
troduction to state that it was given at his request, for 
the feeling that the introduction implied the superiority 
of the introducer and is expected to influence the intro- 
duced is unpleasant in many cases. This feeling has 
often actually destroyed the agent's prospect. 

More about introductions will be found elsewhere in 
this series. This is only referred to now to illustrate the 
point that every departure from the direct method of ad- 
dressing a man without preliminaries sho'uld be so made 
as to preserve the dignity of both parties, and to leave 
the way perfectly clear for the business in hand to be- 
come the chief, if not sole, subject for conversation. 

Agents sell life insurance policies by making men 
think that they want life insurance. The projection of 
any extraneous matter, especially in the first of the in- 
terview, often causes the main subject tO' be lost sight of 
and its consideration to be interfered with. 



( 



CanrassUig. 99 

PIQUE THE INTEREST ON THE START. 

Insurance agents are granted interviews usually not as 
a matter of right but as a matter of favor. Consequently 
the interview is not likely to prove successful unless the 
agent commands the attention of the person interviewed 
right from the start. 

Therefore a statement which will arouse interest and 
incline the prospect to inquire further is often needed in 
order to get a satisfactory interview. 

A statement which will be somewhat surprising and 
even a Httle startling is successful when used for this 
purpose. It is ''putting one's best foot forward." If the 
agent can find anything in his company or contract that 
will stand this he should make use of it. 

Thus, for instance, when a certain agent was sent out 
to sell return premium policies, he used to begin his in- 
terviews with a statement like the following: 

*'You of course know that companies return to surviv- 
ing policyholders more than the money paid by them, 
besides furnishing the insurance. We are offering a little 
improvement which provides that the insurance to men 
who die shall also not cost more than the interest on their 
money. If you die, we pay the face of the policy and re- 
turn all the premiums. If you live we also return all the 
premiums with considerable profit. May I show you 
how it is done?'* 

An agent working for another company found that of 
1 cfG. 



loo Things Agents Should Knozv. 

the few companies which had matured policies similar 
to the one that he was offering his company had given 
the best returns. There w^ere other companies offering 
the policy which had not yet matured any of them, but 
w^hich instituted uncomplimentary comparisons on other 
forms of policies. This agent used to preface his inter- 
views somewhat as follows: 

'T wish to show you, sir, the largest return that was 
ever made upon a policy similar to the one we offer you. 
Some other companies have matured these policies and 
have not done so well. Yet others have not matured 
them, but claim they will do better. You will have to 
judge of that, sir; but it will no doubt interest you to see 
what is the best that any company has done and perhapi 
you will prefer to insure in that company, trusting itj 
performance in preference to other companies' promises.'] 

An agent of another company, which prided itself oj 
its supremacy as a dividend payer, used to introduce hi: 
subject about as follows: 'T will furnish you, sir, if de- 
sired, a statement of a policy issued at your own age w4th 
the name of the man and his residence. If any company 
will furnish you a similar statement of a policy of the 
same kind, issued the same year and making as large re-| 
turns, I will retire from the competition and recommend 
you to do business with that company." 

These are only given as specimen introductions of the 
subject. Of course the agent will not always pursue the 
same course. It must depend upon the man and upon the 



Canvassing, loi 

occasion; but, as a general thing, it pays to have some 
system by which an agent counts upon attracting the at- 
tention and interest of every person he approaches. If he 
can once catch this interest so that the person approached 
really desires the conversation to continue he should be 
able to turn it to his advantage. Evidently it will be fatal 
for him to so begin a conversation that the person ap- 
proached is not interested and only desires to get rid of 
him. 



I02 Things Agents Should Knozv. 

KNOW WHAT YOU WANT AND GO STRAIGHT 

AFTER IT. 

An agent should be built on the rifle plan and not on 
the old-fashioned, ''spreading'' shot-gun plan. 

Directness is the most valuable thing in all his work. 

The trouble with a very large number of men in this 
world of ours is that they never really know what they 
want, and so never do any actually earnest work toward 
a definite end. 

In no business is this indecision more certainly fatal 
than in soliciting insurance. The agent who is all the 
time uncertain as to whether he wishes to continue in the 
business or not has already written ''failure'' for his goal. 

So it is also in the soliciting itself. Know what you i 
want. Let there be no doubt in your own mind that you 
want this man to insure here and now, and that you will . 
be content with nothing less than that. I 

Do not be easily satisfied or mollified. Strive for what 
you know you want. All men respect the man who is 
direct and determined. 

Of course this directness does not imply that you 
should say in so many words that you are after the com- 
mission. That will be understood. But you may say 
that you are after the business That will not be mis- 
understood. 

Each and every minute of your working hours keep 
clearly before you what you want and what you are 



I 



Canvassing, 103 

striving to accomplish. Do not permit yourself to be 
deflected from your work by the attractions of mere so- 
cial enjoyment; and especially do not let your attention 
be diverted to other schemes for money making. This 
is your business — a business which will pay if it is well 
attended to, and which will be certain not to pay if it is 
not attended to. 

Assemble your energies and focus them upon what 
you have in hand. When hope of securing a certain ap- 
plication disappears, waste no' time on idle lamentations, 
but hie yourself to where another prospect opens. Do 
not forget what you are about. The man who is half de- 
cided will always seek to turn the subject of the conversa- 
tion or to satisfy you and himself with less than you have 
asked. 

Know what you want and go straight after it. Take 
something else only when it is sure that you cannot get 
what you have asked. 



104 Things Agents Should Know. 

SINGLENESS OF PURPOSE. 

Some agents are very clever at getting men interested 
up to a certain point, but they seem to be unable to- close 
the business. 

This, in many cases^ is owing to the circumstance that 
when the average man reaches the point where he is 
doubtful whether he ought not tO' insure at once he is 
likely to squirm and to endeavor to change the subject. 
When he does this, if the agent has not kept himself well 
in hand, he is likely to be caught off his guard and to be 
led into conversing on other subjects, with the result that 
the tension lets up and his prospect gets cool on the sub- 
ject of the desire of insuring at once. 

The agent must bear in mind all the time what he is 
there for. If the conversation starts ofif on some other 
subject and in some other direction he should directly re- 
turn to the subject by pointing out some interesting fea- 
ture not before discussed. 

If he will see to it that his own mind does not wander 
he will probably be able to prevent the mind of his 
prospect from wandering. The trouble generally is that 
he permits his own mind to wander, or that he becomes 
discouraged and disgusted and quits. 

There is so far from being any reason for his discour- 
agement that, on the contrary, he ought to be able to sec 
that the "prospect" is adopting these tactics only becaiuse 
he sees that otherwise he would have to surrender. In 



Canvassing. ., 105 

other words, he is by this act confessing that his position 
is not tenable. 

If the agent has steadily borne in mind what he is there 
to do and if he revives the interest in the conversation, 
not by wandering on other subjects, but by bringing up 
new and interesting features of his policy, he will be able 
to defeat the tactics of the half-converted ''prospect,'' and 
to carry away his application in triumph. 

There is no succeeding without determined singleness 
of purpose. 



io6 Things Agents Should Knozv. 



BEWARE THE MAN OF ONE POLICY! 

Is was wisely said of old, ''Beware the man of one 
book/' It may as wisely be said in these days, ''Beware 
the man of one policy." By this is not meant the man 
who holds one policy, but the agent who sells one policy 
and makes no effort to sell any other kind of policy. 

This is all another application of the idea of doing 
one thing well. The agent who offers but the one policy 
is never confused in his own mind as to what he shall 
talk about. Not being confused in his own mind, he 
does not confuse his "prospects.'' This is a most im- 
portant point. Perhaps more sales of insurance have 
been spoiled by putting the prospective customer in doubt 
as to which to choose than by all other blunders agents 
have made. 

Of course, if the customer insists upon it, he should 
be shown everything he wishes to see; but the agent, or- 
dinarily, finds it to his interest to display merely the one 
thing he wishes to- sell. 

Naturally this does not mean that the man of one 
policy should be of one policy forever. He may find a 
better policy to present, and if so he will change horses; 
but he will never try to ride two or more horses at once. 

There are some people who can do that successfully, 
but the trick is more ornamental than useful. Most of 



Canvassing. 107 

us find it better tO' ride one horse, and wiser at that to 
ride a horse to which v/e are accustomed. 

The agent who knows one poHcy, and knows it well, 
is the most dangerous competitor in the field. 



io8: Things Agents Should Know. 

SELLING THE POLICY YOU WISH TO. 

Of course the agent ought to want to sell the customer 
the policy that is best for him, and presumably he does; 
but the customer may not know what is best for him. 
Moreover, it is but natural that the agent's judgment 
should be biased by the consideration of his commission. 
In addition to this, he represents the company and its 
interests primarily; and if it says that it prefers to write 
a certain form of policy, says so clearly and cogently by 
offering 60 per cent, commission for writing that and 
only 40 per cent, for writing another, the agent disre- 
gards his duty to his company somewhat if he insists 
upon writing the other policy. 

It is pleasant anyhow to sell what you like and to 
convince a ^'prospect" that what you wish to sell him is 
what he ought to buy. In fact, it is the triumph of the 
salesman's art. How to accomplish this must in all cases 
depend upon the individual peculiarities of the '^pros- 
pect," and upon the facts of the case. It may be worth 
while, however, to give the experience of a celebrated 
solicitor, related by himself, as an illustration of what 
may be accomplished. 

This solicitor says that upon approaching a certain 
"prospect" to bring the business to a close, having al- 
ready had one very favorable interview at which a twenty 
payment policy with a twenty-year dividend period was 
alone discussed, he found that he had been approached 



Canvassing. 109 

by the agent of another company and had been duly im- 
pressed with the superior desirabiUty of an annual divi- 
dend policy. Now the agent was in a quandary on three 
accounts. One of these was that the company showed 
by its commissions that it preferred himi to write this 
policy with deferred dividends; one was that for the same 
reason his own interests lay in the same direction; and 
the last was that his company would suffer in a com- 
parison of annual dividends. 

These, however, were small matters to^ him. He at 
once approached the subject, as follows: 

''Of course your object in going on the annual divi- 
dend plan is to make your outlay as low as possible. 
Now my company will guarantee you a dividend of 23 
per cent, right off, beginning with the first premium. I 
didn't present this policy because I thought the other one 
better; but since this is what you think you want, we will 
consider it." 

The customer immediately conceded that he would 
rather have a guaranteed dividend of 23 per cent, than 
an estimated dividend, and the application was closed on 
this basis. 

Most agents would have been content with this partial 
victory. Not so the solicitor in question. He wrote the 
company, explaining what had happened and asking that 
they send a policy for the same amount on the twenty 
payment twenty-year dividend plan as well as the policy 
applied for. When these arrived, he went to the appli- 



no Things Agents Should Know. 

cant and personally delivered the policy applied for and 
collected the premium, as if it were a matter of utter in- 
difference to himself. In fact, from the time the gentle- 
man expressed his preference for annual dividends up to 
this time, the other policy had not been mentioned. Now, 
in the agent's judgment, was the proper time to change 
the applicant's decision; for now at last he stood no 
chance of losing the business altogether. He therefore 
said : 

"I have obtained for you the policy that you thought 
you preferred, but it is still my judgment that you have 
not taken the policy that you ought to have. It is all 
very well for a man to buy coal by the basket if he can't 
buy it by the ton or carload; but I think I can show you 
that it would pay you better to pay up your insurance in 
a shorter time and be done with it." 

He continued talking with the gentleman after this 
fashion until he obtained an expression of a preference 
for the dearer policy, whereupon the agent clinched the 
matter by producing it, and explaining that he, knowing 
its greater desirability, felt so sure that the applicant 
would prefer it that he had asked the company to issue 
it and send it on. 1 . ' ^ . 



Canvassing. ill 



LETTING UP TOO EASILY. 

Almost as serious a defect in soliciting as the over- 
loading of one's customer by overpersuasion is to leave 
the customer without selling him that amount of in- 
surance which he can afford to take and which he ought 
to carry. Agents are not proiie to this, still they do so 
occasionally. 

It should be the agent's aim to sell to his customer that 
amount of insurance which the customer can well afford 
to pay for, and which he will be readily convinced is 
adequate. This is moderation; anything beyond it ex- 
travagance; anything below it parsimony. 

Sometimes this failure of agents mounts to the height 
.of failing to place as large a line of insurance as one's 
customer really knows that he wants. Moreover, it hap- 
pens sometimes even with the cleverest solicitors; and it 
always overwhelms them with humiliation, for certainly 
nothing can be more humiliating to a man who -depends 
on his commissions for a living than to discover that he 
has actually gone away from his customer, exulting at 
having obtained the application, when, as a matter of 
fact, his customer was ready to give another and perhaps 
a larger application to the next agent who approached 
fiim. 

,. A gentleman who is now an officer of a leading com- 
pany, but who was then an agent for the same company. 



ti2 Things Agents Should Know. 

once turned up at the general agent's office with an ap- 
plication for a large amount of insurance on the life of a 
man who had hitherto- been proof against all the wiles of 
solicitors. He congratulated himself, with apparent jus- 
tification. Being unable to attend to the delivery of the 
policy himself, it was intrusted to another agent. Having 
performed that errand and having collected the premium, 
this agent asked the man why he did not make the pol- 
icy the full limit issued by the company. 

''Why,'' exclaimed the man, ''you don't really mean to 
tell me that your company writes larger policies than 
this? Smith said nothing about that. I supposed that 
was your biggest line. Of course, I want the most you 
will write. In fact, I ami likely to take a good deal 
more in other companies." 

Another agent who- had been long in the field wrote 
an application for a good-sized policy one day, and felt 
as if he had done a good thing, indeed. It was for the 
amount which he had himself suggested. He had never 
mentioned a larger amount to the man. The very next 
day he met an agent for another company on the street, 
who hailed him as follows : 

"Hello, Robinson, I am glad to see you. Say, do 
you know that was a singular thing yesterday. We got 
an application apiece from the same man within half an 
hour of each other. I stumbled in there, and the man 
told me he had just insured with you. I asked if that f | 
was all the insurance he wanted, and after a litle con- 



Canvassing, 113 

versation he gave me an application for the same 
amount." 

Naturally, Robinson was crestfallen. He then and 
there formed a resolution never again to leave a customer 
until he was quite sure that he had sold him the amount 
of insurance which he desired. 

The agent's motto should be: ''Neither too much nor 
too little.'' 



114 Things Agents Should Know. 

GIVE HIM A CHANCE TO THINK. 

Some agents talk so fast and so long that the persons 
whom they address really do not have an opportunity to 
think out anything. 

A very little consideration will convince one that this 
is a mistake. The only reasonable expectation that an 
agent can have that the ''prospect" will insure arises from 
the hope that he will think himself into doing it. The 
only ground for expecting that the arguments of the 
agent will impel the ''prospect'' to action consists in the 
expectation that these arguments will find lodgment in 
his mind and thus cause him to act. 

The agent is not fishing for suckers with a snare, but 
is fishing for trout with bait. The difference, of course, 
between soliciting and fishing is that the bait ought t 
be all that it purports to be, and that the "prospect'' wil 
be benefited and will not be injured by being caught. 

And at bottom the operations are closely similar i 
each case. One is engaged in producing a psychological 
change in the emotions which will set in motion the 
springs of action. It is the process of impelling from 
within instead of compelling from without. 

Therefore, there is every reason to give your "pros- 
pect" an opportunity to think. Yes, and to express hiat 
thoughts also. Unless you are a mind reader you will, 
otherwise, fail to know how near you are to victory. It 
is safe to say that many a time the agent talks the man 



Canvassing. 115 

into insuring and out again before his tongue quits 
wagging. 

Tliere is one exception to this general rule of conduct, 
however, and that is when the agent sees that the trend 
of his ''prospect's" thought is toward dangerous pitfalls. 
The agent cannot then talk too fast and long if it will 
have the effect of bewildering the ''prospect'' and causing 
him to lose that thread and to set forth upon some other 
line of thinking. These contingencies sometimes arise, 
but that is another matter. 

Ordinarily, however, the agent needs to let the man 
have time to think and to speak his thought. By doing 
so the agent ascertains how effectual his arguments have 
been and learns how tO' supplement them and follow them 
up. The "prospect" himself will often be found to think 
and talk himself into insuring to a large degree if the 
tendency in that direction has been created by the agent's 
arguments. 

It is the agent's business to direct and not to suppress 
thought on the part of hia "prospect." 



ii6 Things Agents Should Know. 



"AS A FAVOR TO ME." 

There is practically no doubt that more insurance is 
placed through personal favor than through all other 
causes combined. By which is meant, not that men in- 
sure because they like the agent, but that they insure 
with him because they like him. 

Of course, if they did not think that insurance was 
something desirable, they would not insure at all. And, 
if they are doubtful about that, the agent who can ''con- 
vict" them — for the process is more like the process of 
"convicting'' a sinner than that of merely convincing the 
intelligence, since it must stir to action — that agent is 
entitled to and will usually obtain the insurance. 

The placing of the insurance as a favor is a thing best 
done without its being asked as a favor. Moreover, it 
is most often done that way. 

If you ask your acquaintance to place his insurance 
with you as a favor, one of two things will happen. You 
will either be disappointed, which will, perhaps, render 
it unlikely that he will ever be inclined to favor you. Or 
your request will be granted, but with ill-grace and with, 
a feeling that you are now under obligations and mus 
expect no more from him. 

How different from this it is when the patron, him- 
self, acts out of a desire to favor you. Then, aside from 
an expression of your appreciation of the kindness, you 



^^1 



Canvassing. 117 

have nothing to do but arrange the matter as requested. 
No humiliation attaches to the transaction. 

The agent who possesses the favor of a man who in- 
tends to place insurance naturally will be preferred if he 
conducts himself in such a manner as to convince his 
acquaintance, first, that he desires to safeguard his in- 
terests, and, second, that he can safeguard them. 

Devote your attention to convincing your "prospect" 
that what you are offering him is best for him. Let your 
personal influence with him weigh merely to overbalance 
the case in your favor if the competing agent succeeds 
in making out as good a case as yourself. 

Then it will be possible for you both to get the busi- 
ness through the favor of your acquaintance and also to 
retain his regard to the end that he will be more prone 
to favor you next time. 

Favors which men do, not merely without feeling that it 
is costing them anything, but also feeling that it was the 
most profitable thing to do, are always remembered 
pleasantly and predispose to the same sort of favors 
again. 

On the contrary, the mere putting of a claim for busi- 
ness on the plea of personal favor is a suggestion that it 
will cost the person who grants the favor the loss of soije 
advantage which he might otherwise reap. It predis- 
poses against granting the favor. 

If your friend says that he intends to favor you and 
still does not do business at once, make it clear that you 



ii8 



Things Agents Should Know. 



appreciate his offer on the understanding that it is to his 
advantage to do so, and that otherwise you do not ask 
it. Then proceed to show him that he ought to insure 
now and with your company. 



Canvassing. 119 

"CALL BACKS." 

The interviews after the first are aptly termed ''call 
backs'' There is a dispute among agents as to whether 
it pays toi make many or them or not. 

This much is sure: It is calling again and again that 
makes an agent a bore. 

There are successful agents who make the boast that 
if they cannot insure a man on the first or, at furthest, 
the second interview, they consider it a waste of time 
to call again. 

Of course, they merely mean that since they are will- 
ing to extend accommodations as to time of payment, 
the person approached being responsible, delaying the 
matter signifies that it is not intended to do business 
at all. 

But not all agents by any means nor all successful 
agents act upon this basis. On the contrary, one field 
man who was considered successful has stated that of 
the first hundred persons whom he approached on life 
insurance a very large percentage eventually insured 
with him, many of them after the lapse of years. 

The fact is that there is a middle ground which is 
probably the truly wise attitude. 

First of all, an agent should seek to get action at once. 
If the matter is put off, try to have it done for considera- 
tion and decision by the next interview, and not for 
indefinite consideration. 



12(J Things Agents Should Know. 

Then state frankly that you do not expect a favorable 
decision as the result of delay; that men usually get luke- 
warm and fail really to consider the matter at all, and 
that you will be agreeably surprised if he is an exception. 

Often a sense of pride and an unconscious desire to 
agreeably surprise you will cause the ''prospect" to de- 
cide favorably, almost before you are out of sight, if you 
have made a pleasant impression. 

But do not go again and again. 

Two or at the most three interviews are enough at 
one time; that is, in quick succession. 

Then merely keep track of the case by looking in now 
and then, ever ready to strike when opportunity offers. 



Canvassing. 121 

STEERERS AND HELPERS. 

Much of the best work in Hfe insurance is done by 
men who visit a town infreq^uently and whose success is 
in part owing to the fact that business must be done now 
or not with them at all. One desirable thing in con- 
nection with this sort of work is that the solicitor, who 
ought to be a thoroughly furnished life insurance man, 
should have to work with him men who are acquainted 
in the neighborhood, who know the financial circum- 
stances of the different citizens, and who are able to give 
him an introduction that will secure him a favorable 
hearing. 

A similar situation exists in larger cities, for the reason 
that, unless there is some reason for seeing him, a man 
who lives in the same block or even in the same build- 
ing with you is in effect as far away from you as the 
antipodes. The difficulty about obtaining interviews also 
is greater in the city, and an immense amount of time 
is wasted in futile attempts to secure interviews and also 
in running about the city. There is no time-waster like 
a great city. 

There is no question that the most effectual method 
of carrying on life insurance soliciting, when the agent 
is a thoroughly successful "closer," is to employ an army 
of persons who will keep track of what is going on among 
their acquaintances, and who will notify him of favorable 
opportunities to secure interviews. These persons, who 



122 Things Agents Should Know. 

are called in the cities "steerers and helpers," and who 
in the country are the local agents of the companies, take 
the solicitors tO' their acquaintances and introduce them. 
By keeping them away from persons who are not likely 
to insure, or who are not able to do so, and introducing 
them to persons with whom there is a fair prospect of 
doing business, they bring it about that the solicitor 
wastes little time in comparison and, therefore, can well 
afford to pay a good part of his commission to the person 
who thus assists him. 

In the cities it has not been customary for these per- 
sons to hold agents' commissions. Not being known as 
agents the "prospect" will not be able to say that he will 
do business with the agent when he makes up his mind 
to insure. Every solicitor who has worked in the country 
is familiar with this method of delaying the transaction. 
Another advantage, no doubt, in some cases, has been 
the fact that the person did not realize that the helper was 
going to get part of the commission. 

Nowadays, however, there are not many persons in 
the larger cities who do not understand that these helpers 
are paid. In fact, it is a matter of common notoriety that 
the most convenient way of giving rebates in evasion of 
the law is to pass the commission through a helper, con- 
cerning whose behavior in the matter the agent assumes 
no responsibility. In fact, so common and so demoraliz- 
ing has this practice become that one of the great com- 
panies will now permit its agents to pay a commission 



Canvassing, 123 

only to persons who' have been regularly appointed its 
agents and who have agreed not to place insurance in 
other companies. Possibly one result of this rule will be 
that in the long run a much more effective helper-system 
will be developed than the old one, because the helpers 
will not feel free to turn the business wherever they 
please; but, on the contrary, the efficiency of the helper- 
system may be greatly impaired if it becomes generally 
known among their acquaintances that they are regularly 
commissioned agents. 



124 Things Agents Should Know, 

SPRINGS OF ENTHUSIASM. 

The efforts of managers to arouse the enthusiasm of 
agents, so ?,s to bring out their best work, have been 
so constant that the expression ''jollying an agent'^ has 
come to have a distinct meaning in insurance. In no 
line of business, and especially in no branch of the sales- 
man's profession, is enthusiasm so necessary as in in- 
surance. 

Notwithstanding that to many it may seem a somewhat 
stilted proposition, it is nevertheless true that the prin- 
cipal fountain for enthusiasm must always be an exalted 
estimate of the importance and value of one's work. The 
agent should understand his mission. He should real- 
ize that no greater blessing has come to man in the nine- 
teenth century than the blessing of insurance, of being 
able to defend himself and those dependent upon him 
from those calamities which in the past overwhelmed 
the individual. The agent who has once thoroughly im- 
pressed himself with the great importance to the men 
whom he addresses of the protection which he offers has 
taken a long step towards being constantly enthusiastic. 

There is a common idea that success only can be 
counted upon to engender constant enthusiasm, and that 
failure must necessarily dampen one's ardor. Nothing 
could be further from the truth. Where one has been 
overmastered by a conviction, failure has a peculiar effect. 
It merely whets one's eagerness. Such a person cannot 



Canvassing. 125 

credit the proposition that he has been, or will be, de- 
feated. He can only believe that victory has been de- 
layed and that it is sure to come. 

Those who hold that success is the one thing neces- 
sary to enthusiasm forget a very common phenomenon, 
namely, that almost all men, when they have succeeded, 
are disposed to rest on their laurels. In some branches 
of insurance it has proven a positive stumbling-block to 
an agent that he has made an extraordinary success for 
the time; it has often caused agents to distinctly diminish 
the strenuousness of their efiforts. 

Of course the solicitor of insurance is in the business 
to make money. Moreover, this is not a base or ignoble 
desire, although until the present century it has generally 
been thought to be so. 

In order to live comfortably, to do one's best work 
and to bring up a family sO' that one's children will be 
useful citizens, one must make money. 

It is only ignoble to desire to make money by injuring 
one's fellow men. An agent may properly combine an 
earnest desire to earn money with an earnest desire to 
serve his fellows, the two objects being attained by the 
same course of conduct. And he ought not to lose en- 
thusiasm because of the mixed motive. 



126 Things Agents Should Know. 

SEEK PROPER OPPORTUNITIES. 

It was a wise man of old who said *'There is a time for 
all things." So, likewise, is there a time to talk life in- 
surance, and many times when it will be unprofitable 
and may be offensive. 

The agent should bide his time and seek his oppor- 
tunity. It is not merely true that many men are of many 
minds; it is also true that the same man is of many minds. 

Taken at the right time^ by testing him in conversa- 
tion, it will be found that almost any man may be led to 
think favorably of insurance. This is because it is a good 
thing, and one of the last and best fruits of the ripening 
civilization of our time. It is because this is true that an 
agent may proceed with full assurance that, when the 
door is open, conviction of the virtues of insurance may 
enter into a man's mind. 

What constitutes a proper opportunity is not so easy 
to define. Much delicacy and tact are needed to de- 
termine this. The case of each individual man will differ 
from the cases of his neighbors. 

Every agent knows that when men are about to un- 
dertake unusual obligations, such as when they are about 
to marry, they are very likely to be well disjx>sed toward 
insurance. It is also well known that when there have 
been deaths among their immediate relatives or friends 
this will predispose them to think seriously of what con- 
dition of affairs would ensue if they were taken. A sud- 



1 



Canvassing. 127 

den or alarming illness on the part of the man himself, 
or some one of his family or friends, will also often have 
the effect of turning his thoughts to life insurance. 

Any one of these cases, of course, the blundering agent 
may easily spoil. They are all matters concerning which 
the man is sensitive. The agent can hardly open up the 
subject of any one of these directly, unless it be an ap- 
proaching nuptial. Perhaps the best way is merely to 
bring up the subject, assuming that one will be heard. 
One will be heard usually, and^ if not, no prejudice has 
been created. 



128 Things Agents Should Know. 

BE SYSTEMATIC. 

When one says "be systematic/' he should not be 
understood to mean ''be mechanical." 

There must be system in all things. In military affairs 
system is a prime necessity. But the difference, after all, 
between a good general and a poor one is not in their 
abilities as disciplinarians but in their genius for success- 
fully fighting battles. A martinet is seldom a good, and 
never a great, commander. 

An agent's system should be a means for an end, and 
not an end in itself. He should take pride in having the 
best tools for his work. He should learn to use the tools 
that he has and to know their true value before he mul- 
tiplies their number. After he has learned to handle 
one thing it is time to take up another, not before. 

System is a way of being economical to save time and 
energy. But in excess it may be made a manner of 
greatly wasting time and energy. 

The thing that the agent must constantly keep before 
him is w^hat he is after. If this object be firmly fixed in 
his mind and he makes use of those methods of work with 
which he is most familiar and in which he is adept, he 
should not fail of success. But if he merely scatters, first 
trying one thing and then another, and building up a 
useless, though formidable-appearing, plan of attack, he 
is likely to find that some person who is prompter to act 
has bagged the game while he is getting ready. 



Canvassing. 129 

Some men have a genius for details. It is not too 
much to say that in most cases these men have no busi- 
ness to be Hfe insurance solicitors. The solicitor must 
be able to generalize and to slight details, not to an un- 
warrantable degree, but to the degree which is warranted 
by his purpose and the necessity of the case. 

True system coexists with enthusiasm. Merely me- 
chanical system is the foe of enthusiasm. 



130 Things Agents Should Know, 

MIND YOUR APPEARANCE. 

Singularly enough, both the famous philosophers of 
Greece and the famous Confucian philosophers of China 
have taught that virtue consists in preserving the mean, 
or, in other words, in moderation in all things. 

In nothing is this truer than in the matter of personal 
appearance, and especially on the part of men who are 
addressing strangers. The appearance should be as 
nearly neutral as possible, neither offending by too great 
nor by too little care. A man should neither be slovenly 
nor foppish. 

Avoid eccentricities of appearance. Keep in the mode, 
neither being overdressed nor underdressed. 

There is one thing, of course, concerning which you 
cannot be too particular, and that is concerning cleanli- 
ness. Spotless cleanliness, meaning not merely the ab- 
sence of dirt, but also the absence of that stench which 
indicates invisible dirt, is a thing in which one cannot 
excel too much. 

But in everything else concerning his personal ap- 
pearance the agent should observe the golden mean. He 
should avoid jewelry and the ornate in every particular. 
His clothes should neither be pronounced in style of 
cloth nor in cut. He should strive to create the impres- 
sion that he is merely a well-dressed and a modestly- 
dressed person. 

Above all things he must avoid dressing so that he 



Canvassing, 13 1 

appears undignified. Upon the impression of dignity 
which he makes when addressing a stranger depends, in 
a large part, the sort of interview he will obtain. 

There are two things which make up the appearance. 
One is the dress^, and the other, which is of even greater 
importance, is the manner. 

Upon the manners will depend to a greater degree the 
impression which the agent creates than even upon his 
attire. His manner should be frcnk, self-reliant and en- 
gaging. 

In this, also, he should observe the golden mean, for 
he should avoid both deprecating manners and preten- 
tious manners. He should not behave as if he thought 
that he was better nor as if he thought that he was worse 
than the man addressed. He should meet him on terms 
of equality. 

This is really effacing himself, for by so doing he 
causes his customer not to think of him at all, but to 
think merely of the subject-matter in hand, which is the 
business to be considered. 



132 



Things Agents Should Know. 



RECIPROCITY WITH DEALERS. 1 

Insurance agents will do well to avoid even the ap- 
pearance of ''trucking/' that is, of being willing to trade 
policies for goods. Many an agent has spoiled his career 
at the outset by making offers to nearly everybody he 
met to trade for merchandise instead of insisting upon 
cash payments. 

At the same time there may properly be a reciprocity 
of trade. The merchant who patronizes the agent should 
in turn receive his patronage, if possible, and the suc- 
cessful use of his patronage will often give the agent a 
claim upon business which he would not otherwise have 
been able to reach at all. 

Thus, for instance, it is entirely proper that the agent 
should expect and demand that his grocer, butcher, baker 
and the other dealers whom he regularly patronizes 
should give him their insurance. This will cost them 
nothing, presumably, because they would otherwise pay 
their premiums to somebody else, and if handled at all 
delicately, the agent should find no difficulty about the 
matter. 

By occasionally directing and recommending other 
persons to the dealers with whom he trades the agent 
may establish the right to expect that these dealers will 
exert their influence to obtain him business. Thus, for 
instance, they may introduce him, or if they know of 
persons about to obtain insurance they may either send 



Canvassing. 133 

them to him or him to them. They may also influence 
their customers, making the fact that they carry insur- 
ance with this agent and his company as public as pos- 
sible. 

Care, of course, should be taken in this matter that the 
agent is not harming himself instead of helping himself. 
Thus, the dealers should be men of good reputation and 
standing, so that their opinions and judgments would be 
accepted by persons who stand well in the community. 
Otherwise the agent may, by their evil association, at- 
tract to himself a class of custom which he ought not to 
desire and which will repel better. 



134 Things Agents Should Know, 



i 



WHEN PREMIUMS ARE PAID. 

One of the lessons which an agent needs to learn is the 
value of trifles. By this is meant ''to place upon them 
their true value." Many things which are apparently 
trifles may be transformed into important aids to the 
agent's success, and if neglected by him may prove seri- 
ous obstacles to his success without his ever guessing 
what those obstacles were. 

One of the very best times to encourage men to take in- 
surance is when they are paying premiums on insurance 
which they have already taken. If they are at that time 
warmly congratulated upon the policies which they 
already own it will have a tendency to make them better 
satisfied and possibly to make them desire more. 

When a policyholder pays a premium one has in that 
fact clear evidence that he is able to carry the insurance 
which he already has, and, since things are rarely pre- 
cisely balanced in this world, it will happen in the ma- 
jority of cases that he can easily carry more. Therefore, 
if an agent can impress upon him in an agreeable man- 
ner that the insurance which he has is a very good thing, 
indeed, he ought to be able to make him feel that a little 
more would be a better thing. 

There is still another reason why a few pleasant words 
are desirable when a policyholder pays a premium. 
Owing to the manner in which agents often solicit insur- 
ance it has passed into a proverb that all they desire is to 



Canvassing. 135 

get a man's application and his money, and then they 
have no further use for him. Very frequently the con- 
trast between the excessive interest in a man's affairs 
which the soliciting agent pretends and the want of inter- 
est in him on the part of persons tO' whom he pays pre- 
miums thereafter is painful indeed; in fact, it may be said 
to be disillusionizing. 

This difference is often felt even when the first pre- 
mium is being paid, especially if an obligation has been 
given for it, so that the policyholder has no choice but 
to pay. In cases where the applicant has not taken 
nearly so much as he can afford, it will frequently happen 
that a little judicious attention at this time will enable 
the agent to increase the line to something near what it 
ought to be. 

There is a witty old saying which likens the ardor of 
a man before marriage to running after a street car and 
his undemonstrative disposition after marriage to the 
satisfaction of one who' has got the car. It will be con- 
ceded that the contrast between the behavior of the 
lover before marriage and after marriage is unfortunate 
when it is as plain as this. The same illustration might 
be used to show the difference between the behavior of 
many agents toward their customers before they have se- 
cured their custom and afterwards. 

Really it is in some sense a misfortune that life insur- 
ance has been felt to be a permanent arrangemient, so 
that when one has taken a life insurance policy it is not 



136 Things Agents Should Know, 

necessary to give the matter further attention. In fire 
and other branches of insurance, where this is not true, 
agents are proverbially attentive tO' the wants of their 
patrons, and they lose no opportunity to make the patron 
feel that he has a good thing which he can afford to pay 
for and which, if he has not enough, he ought to in- 
crease. 

It may be an open question whether attempting to 
hold custom by penalties and forfeitures has been a good 
thing. But there is nO' question that the agent will act 
wisely if he models his conduct precisely as if his cus- 
tomer were perfectly free to discontinue his patronage 
when each premium falls due. This is the best course to 
secure the payment of the premium and also a wise 
course in order to get more business. 



Canvassing. 137 

THE DELINQUENTS. 

In many offices the delinquent policyholders are con- 
sidered unmitigated annoyances. There is no sentimicnt 
in the office but one of petulance when it is observed that 
a man's premium is overdue. Some managers are either 
entirely indifferent or make no effort other than a notice 
by mail to collect the premium. Others permit their em- 
ployes to do so, or go about the matter in a purely per- 
functory manner. 

Perhaps no graver mistake could be made in a life in- 
surance office. Suppose that the collecting agent has 
nothing but a very small collection fee. It is, perhaps, 
natural that he should feel that he wo'uld not be paid for 
the trouble if he were to make an active effort to secure 
the premium because the collection fee would not be at 
all equivalent to the labor. 

It is not too much to say that in most offices the man 
who understands his business as a solicitor could go and 
interview these delinquents personally for no direct re- 
turn whatever. He would, if he handled the mattei 
cleverly, be richly compensated for his services by the 
commissions on new business which he would thus ob- 
tain. 

This anyhow has been the experience of many offices 
which have tried it. The expla,nation seems to be that 
coming to the person on the errand of looking after his 
interest the agent gets a favorable entree and hearing. 



138 Things Agents Should Know, 

If the customer has become lukewarm about insurance 
the agent has an opportunity to revive his interest, and 
if he succeeds he is very Hkely to augment the interest 
sufificiently to obtain another application as well as to 
collect the current pemium. In other cases failure to pay 
premiums has been merely because it has been over- 
looked through the carelessness of trusted employes. In 
such cases it will frequently be found that the customer 
is really ready for more insurance, and that he is gener- 
ally grateful for the care taken to prevent his insurance 
from lapsing. In still other cases the premium has not 
been paid because of temporary want of funds. If 
the person be of good credit this can easily be remedied 
by accepting his note for a short time, and it is again en- 
tirely possible that, knowing that a sufficient income will 
be on hand in a short time, the policyholder will be will- 
ing to increase his line of insurance if extended proper 
credit facilities. 

There are many other cases which might be cited and 
described, but probably enough has been said to show 
that the field of what is considered failures and disap- 
pointments by collecting agenis is a rich field for pros- 
pecting. Active work in this field will show that a large 
percentage of the overdue premiums can be collected, 
and that a large new business can also be written among 
men whom unenterprising collecting agents suppose to 
be "hard up." 



Canvassing, 139 

CONDITIONAL APPLICATIONS. 

There is a record of at least one agent who made a 
practice of taking conditional applications, and who 
seemed to thrive by it. By conditional applications is 
meant applications for insurance on condition that the 
applicant could decide whether he would take the in- 
surance or not after the policies came. 

The success of this one agent by this practice is so ex- 
ceptional that one is almost tempted to believe that he 
succeeded in spite of it and not because of it. Still there 
was a certain strength in his declared position, viz., **I 
do not wish any customers who are not, upon mature 
consideration, pleased to be my customers." 

This, however, can be accomplished without leaving 
matters so open as that. All that is necessary in order 
to accomplish the same thing, so far as the impression 
is concerned, is to release any customer who declares 
himself dissatisfied before a report of his premium is 
made to the company. 

There are very evident dangers both to the agent and 
to the applicant in leaving the matter open. 

To the agent there is the danger which always comes 
from having the matter undecided in the man's mind. 
Indecision after the application is made is as bad as in- 
decision before. Nothing is settled, and the agent has 
still his work to do. 

Few men will try to undo a thing which they consider 



140 Things Agents Should Know. 

that they have done and settled; many men will withdraw 
from an arrangement if they consider that it is not set- 
tled. And in any case they will at least consider with- 
drawing as they would not consider it if they had done 
the thing once for all. 

As to the insured, his interests are also jeopardized by 
leaving the matter open. 

Suppose the thing insured against happens during the 
interval? 

The insurance is not in force of course, and the agent 
will be dishonest if he reports it in force; while, on the 
other hand^ it will certainly hurt him in that community 
if he does not so report it. A.nd if the insured has pos- 
session of the policy more trouble will be likely to result. 
This is bad for both parties. 

Therefore, avoid conditional applications; th^ excep- 
tion does not set aside the rule. 



Canvassing. 141 

DATING BACK POLICIES. 

Some companies permit agents to take applications for 
insurance on condition that the policies are to be dated 
back, the insured paying his premium and interest 
thereon from the date of the policy to the date of the ap- 
plication. 

An attempt was made in Wisconsin some years ago to 
have this adjudged to be rebating, and the matter was 
carefully investigated and discussed, but the decision of 
the officer to whom it was referred was that it was in no 
sense an evasion of the law against discrimination. 

Some companies, however, do not permit it, probably 
not because they consider that it is discriminating, but 
because they are of the opinion that it is not an ad- 
vantage but a disadvantage to the agent. 

And indeed there are two sides to the question, for, 
on the one hand, an agent may now and then be able to 
get an application when the policyholder is a short dis- 
tance over the turning point of age by dating the ap- 
plication back; and, on the other hand, no doubt all 
agents have often been able to close their prospects be- 
cause they convinced them that waiting a single day 
longer would incur for them considerably-increased 
cost. 

To be sure an agent could point this out tO' his cus- 
tomer anyhow, and most agents do-, notwithstanding that 
their companies will permit dating back. There is in- 



142 



Things Agents Should Know. 



deed no reason why they should refer to that until the 
proper time comes. 

But there is one thing which they cannot do truth- 
fully, and, therefore, even though they do it untruthfully, 
cannot do with the moral force and effect which truth 
bears with it, and that is tO' say that if the day is permitted 
to go by the advantage which he now has will never be 
restored to him, and that the company will not by any 
contrivance permit him to escape the penalty of his own 
delay. 

It is, therefore, an open question whether, on the 
whole, it is an advantage to the agent in the field for his 
comipany to be obliging in this particular, or whether 
it is not more advantageous^ for him that it be resolutely 
exacting on this point. 



Canvassing. 143 

SEMI-ANNUALS AND QUARTERLIES. 

For the convenience of the insured life insurance com- 
panies have consented that, instead of an annual pre- 
mium, such as is charged practically universally in other 
lines of insurance, a quarterly or a semi-annual premium 
may be paid. This is offered to the insured as a con- 
venience. It is a source of considerable trouble to com- 
panies and of some additional expense. 

For this additional trouble and expense a charge is 
made in the increase of the premium. When an applicant 
suggests that he would prefer to pay in this manner it is 
well to call his attention to this, and to make the point 
that it is a privilege which 1 -^ should only make use of 
when he needs to, and that oilierwise he will be paying 
for something that is of nO' value to him. 

It should be indicated to him, that, if the policy is taken 
on the annual premium basis, and if at any time he de- 
sires to pay quarterly or semi-annually instead the privi- 
lege will be open to him to make use of it just as long as 
he wants to. Therefore there is no need to start the 
policy that way if no necessity exists for paying so at 
present. 

There is a good reason why the agent from his own 
standpoint should not desire his customer to start out on 
a quarterly or semi-annual premium. It is the expe- 
rience of all agents that the likelihood of lapse is far 
greater than it is when the premiums are payable an- 



144 Things Agents Should Know. 

nually. The increase in the probability of lapse is almost 
as great as the increase in the number of payments, that 
is, twofold for semi-annual payments and fourfold for 
quarterly payments. It seems that multiplying pay- 
ments, which multiply the opportunities to lapse, comes 
very near also to multiplying the probability of lapse. 

At the outset there is an additional reason why the 
agent should fear heavy lapsing. It is an universal ex- 
perience that just after men have bought life insurance, 
there is a tendency to reaction on their part, so that if 
the transactions were not completed many of themi would 
be likely to withdraw. Thelarger and more substantial 
is the pledge of money which they have given, the more 
certain they are not to experience this reaction, simply 
because they consider the matter settled and therefore 
dismiss all argument about it from their minds. 

On this account the larger the premium collected in 
advance has been, the less likely is the applicant to lapse 
his policy. 

Since, if only a semi-annual or quarterly premium has 
been collected the agent will have a part of his commis- 
sion deferred until the rest of the premium for the year 
is collected, it follows that the agent has a very vital 
interest in whether this policy is lapsed or not. This 
same interest impels the agent to desire to collect the 
premium for the whole year at once in order that he may 
at once receive his commission. 

In this matter the agent's interests are in complete 



Canvassing. 145 

harmony with the interests of his company, which also 
desires that lapsing be avoided by all possible means and 
especially so for the first year before the company has re- 
ceived money enough to reimburse its outlay. More- 
over, where the company pays the examiner's fee, there 
is an additional loss if only a quarterly or semi-annual 
premium is collected before the policy lapses. 

On this account a wise agent will do his best to collect 
an annual premium in advance and to induce the policy- 
holder, who thinks he may prefer to pay in smaller in- 
stallments, to wait until the necessity for the smaller pay- 
ment exists. 



146 Things Agents Should Know. 

TAKING THE EXAMINER WITH YOU. 

One of those tricks of the trade of life insurance solicit- 
ing which has always seemed a little 'like forcing things, 
is to take a medical examiner with you to an interview 
which is hoped to be final, the consent of the ''prospect" 
not haying already been obtained. Sometimes it pro- 
duces a very good efifect and sometimes an ill effect, de- 
pending largely upon the manner in which it is done. 

If the agent is able to make the ''prospect" feel that 
the examiner's being along is almost adventitious, he 
may get along^ without offending him. Thus, for in- 
stance, he may make the point that the doctor was going 
in this direction and, knowing that it was almost certain 
the prospect w^ould go ahead to-day, he had asked him 
to step in. Few men will be offended at this, and some- 
times it will give the necessary fillip which turns the 
scales in favor of insuring at once. 

There is something very tempting in the fact that 
everything is all ready and that all one has to do is to 
sign his name. If the agent can induce this situation 
without seeming to have been unbusinesslike instead of 
businesslike, and also without seeming to be too urgent, 
he ought to be able to win the day. The presence of the 
physician may assist him to do it. 

On the contrary, if the idea is carried that the agent 
has assumed that the customer certainly will go ahead, 
and that now he must do so because the doctor has been 



Canvassing. 147 

caused ''all this trouble," the ruse will ordinarily fail of 
success, for most men will resent it. Of course there are 
rare cases when the ''prospect'' is either too thick to rec- 
ognize the fact that he has been affronted or too weak 
to bear up against the assault, but the agent must not 
assume that such tactics will, in general, succeed. They 
ought never to succeed, and such success will be dearly 
bought in the end. 

One of the principal difficulties about taking the medi- 
cal examiner along with you is that he will not desire 
to gO'. Especially not if he does not get a chance to earn 
his fee in nearly every case. It will usually be found 
that he will be particularly unwilling to go if he discovers 
that the agent is using him as a part of browbeating 
tactics. 

In this country it is the exception rather than the rule 
that the physician goes to the person to be insured before 
an application has actually been signed. Some examiners 
even then insist that ordinarily the applicant shall come 
to them. In Australia, on the contrary, owing tO' its 
"magnificent distances'' and sparse population, it has been 
quite the practice for every skillful agent to travel about 
the country accompanied by a medical examiner. This 
being the custom, it is not possible for anybody to be 
offended; and, no doubt, the presence of the examiner 
at each interview has been very helpful. 



148 Things Agents Should Know. 

TARDY OR NEGLIGENT MEDICAL EX- 
AMINERS. 

There is at least one complaint against an examiner 
that an agent may properly make upon due occasion; 
and that is that the examiner fails to proceed promptly 
to examine an applicant when the application is turned 
over to him. 

Soliciting life insurance is no sinecure. It means hard 
work, much of it without result. And the comparatively 
large commissions paid when the applications do come, 
are payment not merely for that work which brings re- 
sults but for the hard work without results. 

Therefore, it is decidedly a hardship to be put in peril 
of losing one's commission because, before a slow and 
careless physician gets to the applicant, he may have 
changed his mind. 

There is high authority for the agent's right to com- 
plain of this sort of treatment, no less indeed than Dr. 
John M. Keating, Medical Director of the Penn Mutual 
Life Insurance Company, and a celebrated medical writer, 
in his book on ''How to Examine for Life Insurance." 

What he says is so valuable, not only to inform the 
agent as to the examiner's duties, but also to enable him, 
upon reason for so doing, to call the matter to the at- 
tention of any physician who may threaten to be recal- 
citrant in this matter, that the passage is here quoted in 
its entirety. 



Canvassing. 149 

It is at the very beginning of the chapter on *'How 
to Examine an AppHcant/' and it reads: 

''When an applicant is presented to an examiner, or 
an examiner has been asked to visit one, to make an 
examination, it must be always borne in mind that, in 
a large majority of cases, the individual has not sought 
the insurance of his own free will, but has been convinced 
of the necessity of insuring his life, and the character 
of the policy which the agent has shown him has struck 
his fancy, and he has decided to submit himself for ex- 
amination. Naturally, if much time is lost before he is 
examined, he will cool ofif, or some other agent, with 
more persuasive powers than the first, will convince him 
that his company offers a contract which, in many re- 
spects, is more suited to him. It becomes, therefore, the 
duty of the examiner, who has accepted the position 
from the company, to at once attend to this matter oi 
examination, to let no time elapse, but endeavor, as far 
as possible, tO' postpone for a short time other outstand- 
ing engagements, that will enable him to attend to his 
duty with promptness and willingness. Such an ex- 
aminer is valuable to any company, and his services will 
not only be appreciated, but he will retain the good-will 
of the agent without sacrificing in anyway his reputation 
with the company, and he will honestly discharge his 
duties, which demand that, in the short time that he is 
present with the applicant, he shall acquaint himself as 
thoroughly as possible with all that pertains to that in- 
dividual.'' 



150 Things Agents Should Know. 

TIME IS MONEY. 

It would seem that nobody in all the world ought 
better to know or more constantly to act upon the prop- 
osition that time is money than the Hfe insurance agent. 
For he is continually seeking to get men to protect a 
value which consists of ''after-lifetime.'' He is insuring 
"time" and expressing its value in dollars and ought to 
have the lesson brought home to him by his' own argu- 
ments that to waste time is to waste money. 

Still, among life insurance solicitors there are at least 
as many time-wasters as in other professions or occu- 
pations; and some competent judges estimate that the 
proportion of time wasted by them is larger than in 
most occupations. 

What is the reason of this? For, of course, it has a 
cause. 

The reason is probably to be found in the irregularity 
and uncertainty of rewards. An agent is at one time dis- 
couraged from effort because he is doubtful about the 
reward; at another he is spurred to unusual activity be- 
cause he is confident of the result. 

Now nothing is clearer in life insurance soliciting than 
that these rewards, when they do come, are payment not 
merely for the effort of obtaining that application, but 
for all the apparently fruitless work of the past. If one 
doubts this, he only needs to try the experiment of 
trying to live upon the money he can make by so- 



Canvassing. 151 

liciting only when he knows surely that business will 
result. 

This being true, the agent should never prejudge his 
success for any day. Especially should he never pre- 
judge it to his own disadvantage. The too sanguine 
idea that one is going toi be surely successful is not so 
dangerous; in fact, it is a valuable spur to action. 

But no agent can expect to be paid, either in present 
or future rewards, for time which he does not put in. 
The time which he spends about the office, moping or 
lazing, will never be compensated in any commissions 
that he may earn in future. There is always a certainty 
that he would have earned more commissions if he had 
done no such loafing. 

This must not be understood to mean that he should 
never do anything but work. Recreation and rest have 
- their places; but so far as its tax on the energies is con- ) 
cerned, there is no such exhausting work known as sit- 
ting about, discouraged and disconsolate. 

Rest when you are resting; play when you are play- 
ing; but when the time for labor has arrived, work hard 
and earnestly. 



152 Things Agents Should Know. 

SCHEMES FOR LAZY MEN. 

Agents are all disposed to evolve plans for taking ap- 
plications by wholesale. In so doing they remind one of 
the manner in which the lazy boy of the family piles up 
his load of wood until not another stick can be made 
to lie upon it, in order that he may not need to gO' back 
for another. 

It is an extravagant exaggeration of that which im- 
pels men to seek the easiest way of doing things. J 

There is a world of difference between the plans made 
by a man who intends to work as hard as ever anyhow, 
for the purpose of facilitating and rendering his labors 
more effectual, and the plans of the lazy man who would 
like to get things in such position that the machine would 
run itself and he would not need to work at all. 

There are men of both types in the agency field; and 
their schemes are of very different values. 

Let no agent deceive himself into . thinking that any 
plan of soliciting will work without hard labor on his 
part. With hard labor the best tools can be made to do 
their best work, and very good work can be done with 
poor tools. Without hard labor the best tools will ac- 
complish nothing. ^ 

The agent who works hard is likely to discover what 
things are making his work ineffectual and thus to devise 
means by which those difficulties may be overcome. 
Thus he not merely invents the tools, but he knows pre- 



Canvassing. 153 

cisely their uses and what is gained by using them. He 
does not relax his efforts on account of them, but in- 
stead redoubles them, working under freer conditions 
and with less friction. 

On the contrary, the lazy agent invents that which 
may or may not have merit and then sits down and 
grumbles because ''the measly old thing will not work." 

Perhaps the scheme would work if the agent did. 



154 Things Agents Should Know, 



WASTING TIME ON IMPAIRED RISKS. 

In these days when insurance is offered on some terms 
to a very large proportion of those who are rejected as 
not ''first class/' it is not quite so necessary to warn 
agents not to waste time upon impaired risks as it once 
was, when the only hope of getting insurance for them 
was to convince either the agents' own companies or 
others that the life was all right. Still there is 
abundant reason why an agent should be warned in this 
respect. 

Dr. Charles Gilman Smith, the most celebrated life in- 
surance examiner of Chicago in his day, once said to the 
writer that he fully believed that three dollars was lost 
by the agent in commissions which he would have earned 
upon unexceptionable lives, for every dollar earned by 
devoting his attention to trying to push through the ap- 
plication of some person concerning whose insurability 
the medical department was in doubt. 

With the correctness of the doctor's estimate it is not 
intended to quarrel. His statement was in any case a 
fair expression of the fact that there is great danger that 
too much effort be devoted to seeking to accomplish the 
impossible, a waste of time which is sure to be punished 
by a shrinkage of income. In these days when there are 
companies which make a business of insuring persons 
who have been rejected elsewhere, there certainly appear 



Canvassing, 155 

to be no reasons why an agent should spend any great 
amount of his time in the bootless attempt to obtain a 
reconsideration of his own company's decision. 

Doubtless after a time more companies will adopt the 
system of writing substandard lives by grading the risks 
as intelligently as- possible. This has long been done in 
Great Britain and abroad, and with much success. In- 
deed, in the case of one company, at least, the Australian 
Mutual Provident Society, where the *'rated-up lives" 
amounted to one-third of the whole, the actual mortality 
compared with the expected upon these lives was but 
very little higher than the actual mortality compared with 
the expected in the entire business of the company. This 
indicates that grading impaired lives is possible, and that 
in the near future most American companies may adopt 
some system by which they can write many of the lives 
which they now reject. 

At present, while they are without any such system, it 
w^ould be a grave injustice to their policyholders for them 
to do so. Writing the lives upon endowment or other 
high premium plans only mitigates this injustice, but 
does not remove it. It mitigates it by rapidly decreas- 
ing the amount at risk; but it does not furnish the com- 
pany with a larger provision for mortality. That is to 
say, under an endowment policy the insured contributes 
■ the same proportionate ''tabular cost of insurance" as 
under a life policy. This ''tabular cost" is all that con- 
tributes toward paying for the risk, and the injustice con- 



156 Things Agents Should Know, 

sists in the fact that, the life being impaired, this charge 
ought to be higher. 

The agent's interest lies in causing the system of grad 
ing risks to be adopted by his company as soon as prac- 
ticable. He will find that this will be accomplished more 
readily and probably sooner by his promptly placing his 
rejected lives with some company which seeks that busi- 
ness. This course will be appreciated by his own com- 
pany, which will thus avoid the annoyance of being con- 
stantly supplicated by him to do that which the medical 
department does not approve. Moreover, the ultimate 
effect may be that his company, seeing the large and 
profitable business transacted by other companies in thes 
lives, will desire to obtain for itself a share of that busl 
ness, the value of which it will then see. 



1 



Canvassing. 157 

THE AGENT'S RIGHJ TO A HEARING. 

The. man who is offering something which people 
ought to buy has a right to a hearing. He should feel 
that he has this right and that he is not humiliating him- 
self in seeking an interview. 

The fact that the persons whom he approaches do not 
always nor even generally recognize that it is to their 
advantage to grant an interview, renders it necessary for 
the agent to be clever in seeking a hearing. He must 
remember, however, at all times, that a satisfactory hear- 
ing will be granted him only when it is believed that the 
subject in hand as presented by him will interest and 
advantage the person approached. 

Concerning his person and manners, therefore, they 
should be irreproachable and neutral and not ingra- 
tiating. 

He should have a dignified but not overweening sense 
of his own importance and especially of the importance 
of that which he purposes to present. 

This sense may be cultivated if the agent will ponder 
the necessity for men to carry insurance and the fact that 
almost all of them would be unprotected if men like him- 
self did not diligently and persistently solicit them to in- 
sure. The bringing of all mankind into the relation oi 
solidarity through insurance is a task well worth under- 
taking and worthy the efforts of the best of men. 

Considerations of this nature are not things to quote 



158 Things Agents Should Know. 

4 

to one's customers, but they are things which one may 
rightly ponder to himself and the proper comprehension 
of them will give inspiration and dignity. 

The man who approaches another with the purpose of 
conferring upon him a benefit should feel in his own 
heart that he is entitled to a hearing and that a wrong 
will be done to the person he approaches as well as to 
himself if, by any chance, he shall not succeed in obtain- 
ing a hearing. Thus informed and thus disposed, he will 
quarrel with himself if by any deficiency of cleverness he 
is unable to obtain the hearings to which he knows he 
is entitled. 

Never approach a man in an overhumble or ingratiat- 
ing manner as if it were necessary to apologize for your 
business. Always approach him with an exalted sense 
of your mission which is to do him good. This senti- 
ment will not mislead you into bombastic or grandiose 
behavior. 



Canvassing, 159 

HONORS ARE EASY. 

A good air for the cgent to carry, both before and 
after securing an application, is the air that ''favors are 
easy/' By this is meant that the agent should take care 
both to avoid appearing unduly indifferent, and also to 
avoid appearing overanxious on personal grounds. 

Of course the agent is working for a commission. Few 
people are so dull as not to understand that. The ap- 
plicant does not pay him the commission, but by con- 
senting to do business with him he enables him to collect 
the commission from his company. It is therefore a dis- 
tinct advantage to the agent to have him insure with 
him; and the applicant knows that without being told. 

But, of course, he is not going to insure with him on 
that account and the agent has every reason not to force 
that fact to the foreground. The man is going to in- 
sure, if at all, because it is to his own advantage and not 
because it is to the agent's advantage. 

Therefore, without any attempt to disguise that he 
expects and desires to receive a commission for his work, 
the agent should avoid addressing the attention of his 
prospect to that fact in a manner which will convey the 
idea that he is asking him to do him a kindness. To 
convey that idea is commonly to create a feeling in the 
mind of the applicant that he is being desired to do some- 
thing as a matter of charity, instead of as a matter of 
business. 



i6o Things Agents Should Know. 

The other extreme is the lordly assumption on the part 
of the agent that he is doing the applicant a very great 
favor. Of course, if he is too lordly, he becomes merely 
ridiculous, and he even ceases to become offensive on 
that account. But whether offensive or laughable, his 
bearing commonly loses the business. The proper man- 
ner is equable, frank, appealing to the man from the 
side of his own interest, seeking to demonstrate to him 
that it is to his interest to act, and disavowing by word 
and act that he is expected to do so if not clearly to 
his interest. 

Not only when the application is being obtained should 
this attitude be held, but also aftervv^ard, as when the pol- 
icy is delivered and the premium collected. At no time 
should the agent be guilty of the weakness of causing the 
opinion that he has been greatly favored. If he should 
do this, he is sure to create a suspicion on the part of the 
man that he has m_ade a mistake. The opposite extreme 
to this is to treat the man with indifference just because 
one has his money. This practice is short-sighted, since 
a pleased patron is very likely to become a customer for 
a larger amount at some other time. 

There is little danger if, as a matter of every-day polite- 
ness, the agent expresses his sense of obligation and of 
having been favored, and shows that it is appreciated; 
because such is taken at its true worth, merely as a form 
of politeness which shows that the agent is a gentleman 
and understands the ways of gentlemen. But it is quite 



Canvassing, i6i 

another thing when he permits an insight to be had into 
how great a favor it was, and how great a favor he may 
have felt it to be. 



i62 Things Agents Should Know. 

THOROUGHLY WORKED. 

One will often hear an agent say : "This town has been 
thoroughly worked/' In fact, in these modern days the 
impression is pretty common that people are hounded to 
death to take life insurance. 

Well, some people are; but if there ever was a time 
since life insurance soliciting began when this impres- 
sion did not exist the memory of the oldest inhabitant 
does not include that day. The fact is that instead of 
being overdone there is little doubt that the field of life 
insurance, even in the United States, is a neglected one. 
Much careless and therefore fruitless work is no doubt 
done. But intelligent effort still continues to pay and to 
demonstrate that there are yet many persons who should 
be insured that are not, and that would be if properly 
approached. 

Cornelius Walford, in a chapter on ''Practical Words 
"^lor Insurance Agents,'' in his Insurance Guide and Hand- 
Book, says : 'There are in every town numbers of persons 
who have never entertained the subject of life assurance 
for a moment, but yet whose families stand as much in 
need of protection as their houses and property require 
to be insured against fire, which the same persons would 
on no account neglect." 

This is as true to-day as it was when he said it. Many 
an agent who is spending a large part of his time grum- 
bling around his own office about how slow business is 



Canvassing, 163 

would find to his surprise, if he began an active canvass, 
that there are many people who did not even know of his 
company. 

It is not even true that the wealthy and prominent 
men are all solicited to death, though they are made of 
course by their very prominence shining marks for the 
agent's arrows. It once happened in one of the largest 
cities of the United States t-hat an agent representing 
one of the leading companies found a very wealthy man 
of middle age who had absolutely never been canvassed 
by an agent of that company, though he had more than 
$100^000 insurance upon his life in various companies. 

In another case, in a small city within 50 miles of a 
large company's home office, a very wealthy man was 
interested by an agent in certain facts concerning that 
company, and he said: ''Why did I not know these 
things before?" 

It thus transpired that he also had never had an inter- 
view with an agent of that company. 

Now in both of these cases of course agents had sought 
these interviews repeatedly, but they had not obtained 
hearings. That, however, constitutes no reason why fur- 
ther efforts should not be made to obtain these hearings. 
The fact that others have failed is not conclusive that 
you will fail, nor is the fact that you have not succeeded 
in the past conclusive that you will not succeed now. 
• The angler does not stop fishing because the trout do 
not snap at his bait when first presented. 



164 Things Agents Should Know, 

The wise philosopher has said that fooHsh men when 
they do not succeed look for the cause in others, wise 
men look for the cause in themselves. 



Canvassing. 165 

SNUBS. 

Solicitors are sometimes compelled to endure snubs. 
The honest agent who is conscious that he desires onl}- 
to do good to the person approached and in no way to 
injure him should reflect that his injury is vicarious pun- 
ishment^ that he is suflFering for the sins of others. If 
there had never been an agent who bored his ''prospect/' 
or an agent who bully-ragged, or an agent who over- 
reached his customer, or an agent who outrageously mis- 
represented what he had to sell, then solicitors would 
seldom meet other than pleasant receptions, and when 
they did they might well smile, for the discourtesy would 
be evidence of the ill-breeding of the discourteous person 
and not in any sense a reflection upon the agent. 

When an agent has understood the reason why he has 
been uncivilly received, he should let it drive two lessons 
home into his heart. One of those lessons should be that 
under no consideration would he make himself a nuisance 
to any man. The other lesson should be that, whatever 
the temptation, he will never permit himself to sell a 
policy which would not be satisfactory to the purchaser, 
if fully understood. These lessons he should learn in 
order that nothing in his conduct may cause another 
agent to be snubbed or add to the volume of the already 
existing prejudices against men of his vocation. 

He should also learn these lessons in order that when- 
ever he is dismissed with scant courtesy he will be en- 



i66 Things Agents Should Know. 

abled to hold up his head and say to himself, as an honest 
and well-behaved man might: ''This snub was not meant 
for me. I shall not be angry or humiliated, for I do not 
deserve it; and if the person had known me as I am he 
would not have permitted me to suffer it." 



Canvassing, 167 

AN ANTIDOTE FOR PROCRASTINATION. 

The soliciting of life insurance is peculiar in that, usu- 
ally, it is most successfully prosecuted by men who do 
not visit the persons proposed to be insured at all fre- 
quently. Concerning nothing in life is the average man 
more apt to adopt the Spanish motto "manafia," or ''to- 
morrow," than in the taking of life insurance. Procras- 
tination is in fact the rule and not the exception. More- 
over, men are singularly prone to think that they can just 
as well attend to it any day if the agent lives just around 
the corner and meets them every day. 

The very ease with which the thing can be done at- 
tracts them. It seems such a simple thing merely to drop 
in on a neighbor when you want insurance or to act 
some time — some other time — when he drops in on you. 
In consequence of which there is of course no especial 
need of acting now. 

At bottom this is caused by the peculiar view which 
men take of their likelihood of surviving. No man be- 
lieves that he is going to die to-morrow. Thus, the very 
day before his death, Col. George E. Waring, who gave 
his life in the service of his fellowmen, having contracted 
yellow fever in Cuba while seeking to plan out a system 
of sanitation, desired to take up his work^ since he felt 
so much better. He did not know that the dread dis- 
ease had hold on him, but supposed it to be simply ma- 
laria. In order to prevent his undertaking the work his 



i68 Things Agents Should Know, 

physicians told him the truth, which it was almost im- 
possible for him to beheve, though in less than twenty- 
four hours he was dead. 

Such an excess of confidence is thus exhibited, even 
when one is on the verge of death by dangerous disease. 
It may naturally happen, therefore, that most men feel 
that they are not going to die soon, and that conse- 
quently they can procrastinate with impunity. 

There are good and valid arguments against procrasti- 
nation, but what men do is unfortunately not always nor 
even usually determined by reason. The fact is that as a 
remedy for procrastination there is nothing that com- 
pares with merely so arranging matters that the impres- 
sion that the insurance may be negotiated with this 
agent at any time will be removed. 

This is a matter of some difficulty w^hen the agent 
really does live next door. It is a matter of still greater 
difficulty if he is a leisurely sort of man who takes a slack 
view of things and who himself says, oftentimes: "I will 
see you to-morrow." 

The only safety for an agent who is doing a neighbor- 
hood business is to impress his customer before he begins 
talking with him about the merits of what he has to offer 
with the idea that he does not wish to spend any time 
unless, if the ''prospect" is convinced, he would be ready 
to act now. If it is possible the agent should create a 
feeling in the neighborhood that he is so busy and so re- 
muneratively employed that he really cannot afford to 



Canvassing, 169 

merely satisfy any man's curiosity. It is entirely feasible 
for an agent to make all persons feel that he does not 
wish to take up his time nor their own unless business 
can be done now, if the persons addressed should find 
it a good thing to do. 

This impression can hardly be created if the agent's 
field of operation is merely a small town, or even a city 
of moderate size. In such cases he should have sufficient 
adjacent territory so that he can be away from home 
much of the time. The impression which he should 
strive to create should be dual in character. First, that 
he really is busy^ and so cannot come merely at a beck 
and call; and, second, that he has no disposition to talk 
with a man who is financially unable to do business now, 
preferring to go into the details with him when the time 
arrives that he is able to pay for the insurance. 



170 Things Agents Should Knozv, 

DWELL ON THE ATTRACTIVE FEATURES. 

When an agent has found what features in the policies 
of his company are most attractive when well and truly 
represented, he should dwell upon them in his soliciting. 

Explaining away your weak points is at best an un- 
pleasant and not directly profitable business. Do not 
anticipate objections! If they are brought meet them, 
but meet them with ten words about the attractive fea- 
tures to one word about the things objected to. 

It is possible to see nothing but hideousness in a rap- 
turously beautiful woman by looking at nothing but a 
small mole on the back of her neck. The surest way to 
forget the mole is to view the beauties which too close 
attention to small defects prevents one's seeing. 

The man who sees in your policy what he wants will 
not be prevented from purchasing because it is not in 
every little trifle just what he would like. 

If it does not pay to spend time unnecessarily in ex- 
plaining away your own weak points, still less does it pay 
to spend time in magnifying the weak points of your 
competitor's policy. 

The less you say about his policy the better. Talking 
a man out of buying it will not sell your own; if you 
convince him that he wants yours he will not buy the 
other. 

Don't talk down the other agent's company or policy; 
talk up your own! 



Canvassing. 171 

It is wisest to let the other agent tell his own story 
while you tell yours only. If, in spite of that, he attacks 
you the chances are that the "prospect" will think the 
worse of him and his company and the better of you and 
your company for it. 

The very last resort should be to- meet the attack — a 
resort which is certain to have a very doubtful issue, 
Commonly it will be found that the more bitterly you 
fight the less chance there is that either will get the in- 
surance. 

Some man of peace, some non-combatant, is likely in 
that case to chance along at the right moment and give 
the perplexed and annoyed ''prospect'' an opportunity to 
punish both of you as you deserve. 

That non-combatant's virtue will be that he talks about 
what he wishes to sell and about nothing else, and that 
will get the business. 



172 Things Agents Should Know. 

YOUR WEAK POINT. 

If there is any company which has no weak point, that 
paragon of unexampled virtues has not yet been heralded 
to the w^orld. Consequently, the agent need not despair 
when he discovers that there are some things in which 
one or more of the competing companies can show as 
good or a better record than his own. 

The only time when a defect hurts an agent is when 
he is forever attempting to conceal it. To have to go 
around with the knowledge that he is w^eak on this mat- 
ter^, and that he must at all hazards keep it from the 
knowledge of his customers is to ruin his prospects. 

There are few more pitiful objects to be encountered 
than the agent who is in such a plight. He goes about 
dreading exposure, and when it comes he flounders help- 
lesslv. 

The way to handle a matter of this sort is to face the 
fact, to be ready to concede it, and then to talk about 
something else. The agent must consider that his com- 
pany and its policies are desirable, notwithstanding this 
defect, or of course he would not be working for that 
company and trying to sell those policies. Consequently 
he may be able to let his customer see the wxak spot as 
freely as he inspects it himself and still be able to create 
in their minds the same sentiment which is in his ow^n, 
viz., that the company and the policies are desirable not- 
withstanding. 



Canvassing, 173 

There are some agents who find, for instance, that 
when they are confronted by a company which is able to. 
show better poHcy results than their own they are com- 
pletely stumped, and can go no further, except by lying, 
introducing spurious comparisons and quibbling in every 
possible manner. This usually avails them nothing, and 
if it does avail them it ought not to. 

Suppose instead the agent were to say : ''The compari- 
son of policy results which you have in your hand is, I 
think, accurate. We do not claim to have done as well 
as that company in that matter. Of course, what either 
of us will do in the future nobody knows. Their ad- 
vantage may pass away. But now, if you please, let me 
show you some of the advantages of our company and 
contract. Of course you must understand that we 
should never have been able to sell insurance in competi- 
tion at all if there had not been advantages to at least 
counterbalance the larger dividend there." 

That agent will have got rid of all necessity of ever dis- 
cussing the question of dividends with that customer 
again. If he is able to make out a good case in every 
other respect as, for instance, to point out more liberal 
features, greater privileges and a larger measure of value 
for the larger cost^ he ought to be able to place his policy: 
At any rate he will have created a good impression, and 
will, all things being equal, or nearly equal, be likely to 
' be favored. 



174 Things Agefits Should Know, 

RESERVE ARGUMENTS. 

Was it at Bunker Hill that the patriot Warren, con- 
scious of being short of men and ammunition, ordered 
his men to reserve their fire until they could see the 
whites of their enemies' eyes? 

That order might well sink into the minds of insur- 
ance agents. 

It often happens that the agent has exhausted all his 
best arguments in a flood of oratory before the ''pros- 
pect" has become convinced that he wants the insur- 
ance, and that there is nothing in reserve to make him 
want it more and more when he begins to invent rea- 
sons for delay. 

The fact is that one should reserve his best shot for the 
last. He should be in position to heighten and deepen, 
and in every way to augment the ''prospect's" desire for 
the insurance. 

There is an analogy in the way the etcher practices his 
art. He first maps out the Hnes which he intends to be 
the darkest and deepest; in the same w^ay the agent 
should first present, if possible, those arguments which 
are most solid and which appear stronger the more they 
are contemplated. Then after one acid bath the etcher 
sketches other lines, and the next bath both deepens the 
old lines and cuts the new ones on the plate. Thus the 
adroit agent reinforces his first arguments by others^ and 
as each recurring bath of the etcher's plate perfects, and 



Canvassing. 175 

completes the picture, so each new argument of the agent 
should support and reinforce harmoniously the effect 
produced by that argument which first made the ''pros- 
pect'' desire the insurance. 

The final and conclusive arguments must be of such 
a nature as will render the thing more desirable and more 
desired. Bend your energies to that end. Hold back 
resolutely those arguments which will be the cap-sheaf, 
the corner-stone of your edifice. A keystone wrongly 
deposited at the base of the arch is no better than any 
other stone of the arch; indeed it may spoil the arch. But 
when it is placed where it belongs it binds the arch to- 
gether. 

So it is also with cleverly chosen arguments which 
have been held in reserve. 



176 Things Agents Should^ Know. 



"CAN I AFFORD IT?" 

This question is usually asked by a man who spends 
more every year on tobacco or other luxuries than would 
be required to purchase all the insurance he ought to 
carry. 

In any case the agent makes a stupid blunder who un- 
dertakes to argue with the man directly about his finan- 
cial ability to carry insurance. 

What needs to be done is to so convince him of the 
desirability of insurance that he will not fail to put it 
ahead of something else for which he now spends 
money. 

All your argument will not enlarge his income nor 
diminish his expenses. What you may be able to do is 
to convince him not so much that he can afford it as 
that he cannot afford to do without it. 

It cannot be too much impressed upon an agent's mind 
that the best course is always to make the thing so at- 
tractive to the ''prospect" that he talks down his own 
difficulties. 

Soliciting is psychological and not merely logical and 
rational. It has the elements of fishing in it. Men are 
allured instead of being merely convinced. 

The fact is that very little convincing remains to be 
done. Nearly everybody nowadays believes in insurance. 

What needs to be done is to give the impetus to action 



Canvassing. 177 

And this requires the presentation of a motive to act. 
That is a problem in psychology and not in logic. 

The secret of it in soHciting is: When you have dis- 
covered what attracts the customer and makes him want 
to insure at all, amplify it and dwell upon it. 

When he presents objections and arguments for delay 
avoid the issue or give the points as little attention as 
possible, ever returning to the features which you know 
are tempting him to act. 

His desire, if it gets strong enough, will talk down his 
own objections and silence them for good. 

On the contrary, when you argue he is likely, after the 
manner of men, to take more warmly the other side. 



178 Things Agents Should Know. 

BUT NOT SO SOON. 

One of the cleverest editors of a company paper, John 
M. Hudnut, of the Nezu York News Letter, once wrote a 
very valuable editorial based on the saying- of a dying 
man: 'T expected this, but not so soon." 

That is just the trouble. Everybody expects to die 
some time. Death is not a risk, not a chance, but a cer- 
tainty. The only chance there is about it is as to when 
it will occur. 

Beneficent nature has so ordered things that men do 
not live with a constant fear of death, but instead live as 
if they were not to die. Therefore, it nearly always hap- 
pens that when the summons comes it finds the person 
unprepared and ready to say: 'T expected this, but not 
so soon." 

Of course not; if death had been expected so soon he 
would not have gone into that last business venture; he 
would not have gone into debt for property; he would 
not have married and left a family dependent; in other 
words, he would have ordered his life very differently if 
he had expected to die so soon. 

But it will not do for men to refuse to do enterprising 
things simply because they may die. They must pro- 
ceed on the basis that they are not going to die so soon. 

And still they may die, and many of them will die very 
soon. 

What is the thing to do? Evidently it is to go ahead 



Canvassing, 179 

as if life were assured, and to insure against its possible 
termination, so as to protect those who will suffer be- 
cause of that unexpected and early demise. 

One of the best arguments an agent can have in favor 
of immediate action on a life insurance proposition Is 
that death finds these words on every lip: ''I expected 
this, but not so soon." 



i8o Things Agents Should Know. 

MEETING OBJECTIONS TO CASH SURREN- 
DERS. 

In these days when agents are for the most part en- 
gaged in seUing poHcies that provide for Uberal cash sur- 
render values, they will be met occasionally by argu- 
ments as to the safety and propriety of such contracts. 
Some of the arguments that are likely to be produced are 
answered herein according to the best ability of the 
writer to suggest reasons why cash surrenders are not 
dangerous to a company nor in any way undesirable. 

The principal argument is that cash surrenders cause 
a larger number of persons to discontinue their policies, 
among whom also are a larger number of persons in 
first-class health, so that the lives remaining in the com- 
pany are not of so high a standard of vitality as they 
were before the others deserted it. 

The eminent actuary, Emory McClintock, of the Mu- 
tual Life Insurance Company, said^, concerning this mat- 
ter, before his company became a cash-surrender com- 
pany: *'A life company which retains its popularity does 
not in fact usually suffer on the score of vitality by reason 
of discontinuances." 

Colonel W. H. Dyer, of the Berkshire, who has had a 
very long experience in life insurance, has quoted Mr 
McClintock's statement, and reinforced it as follows* 
*'My own individual observation during more than 
twenty years' experience convinces me that among pol- 



Canvassing:. i8i 



t> 



icyhoklers who surrender for cash values the impaired 
lives are a very much larger proportion than is the total 
of impaired risks in the company, compared with its total 
membership." 

Another and apparently crushing reply is merely to 
compare rates of discontinuance in cash-surrender com- 
panies and other companies, and also to compare the 
percentages of actual to expected losses in these com- 
panies. When there is added the fact that cash-sur- 
render companies exhibit practically as low rates of dis- 
continuance and as low mortality as their competitors, 
and the further fact that the lowest rate of discontinu- 
ance in the world and the lowest mortality is in preemi- 
nently the most typical cash-surrender company of the 
world, the Australian Mutual Provident^ the argument 
appears to fall to the ground. 

The principal objection remaining is that in times of 
panic there might be a run on a company. There is 
something in that objection, too, although experience 
has shown that there have been no such runs. But it 
may be conceded that if the soundness of a company 
were questioned at such a time, or in fact at any time, 
there might conceivably be such a sudden demand for 
cash surrenders that it might have to succumb. 

The moral of this is perhaps that managers should not 
permit their companies to become unsound, and they 
should not expect consideration if they do. Companies 
seek to protect themselves from the danger, however, by 



1 82 Things Agents Should Know. 

one of two provisions, viz., either that the right to call 
for a cash surrender shall obtain only at the end of the 
policy year or, less commonly, that the company shall 
not be compelled to use more than a certain definite pro- 
portion of its funds to pay cash surrenders. 

The third objection to cash surrenders is heard now- 
adays less frequently than of old. It is that they tempt 
men to sacrifice the protection of their families in order 
to obtain possession of small sums of money which they 
might as well do without. The pretense of paternal so- 
Hcitude for the insured never had any great weight with 
applicants and need not be feared by agents. 



Canvassing, 183 

HALTING BETWEEN TWO OPINIONS. 

A novice in soliciting invariably gets alarmed when his 
''prospect'' begins to interpose objections. 

On the contrary, the wise veteran always feels at this 
juncture that he is progressing satisfactorily with his 
campaign. He regards the behavior of the ''prospect" 
as evidence simply that he has already felt the force of 
the argument in favor of insuring at once, and is now 
grasping desperately for defenses. It means, in other 
words, that he has been dislodged from what hitherto 
he considered valid reasons for not insuring. He is 
now seeking new cover. 

There is of course reason sometimes for meeting these 
objections. The agent should not, however, magnify the 
necessity for so doing. As a rule the ''prospect'' himself 
takes no great stock in them. 

That the "prospect" should deign to mention these ob- 
jections means that he has become interested, and that 
the insurance offered is attractive to him. The thing to 
do is not so much to remove the objections which he in- 
terposes as it is to augment the attractiveness of the in- 
surance by all proper means. 

If his desire is whetted to such a degree that he feels 
that he really must have the insurance he will buy it. 

Objections are Hke the brake on the wheels of a wagon. 
They are valid and potent so long only as the traction has 
not been increased enough to drag the wagon ahead any- 



184 Things Agents Should Knoiv. 

how. Thus there are two ways to get the wagon ahead, 
one by removing the brake, and the other by increasing 
the traction. 

If one could remove the objections in soHciting with- 
out letting up on the attractiveness of the insurance 
which constitutes the motive force, it would be well to 
devote time to it. The trouble is that generally the incU- 
nation to insure dies away while the agent is wasting -his 
time on objections which were excuses and not really 
reasons for not acting. 



Canvassing, 185 

THE WIFE'S OPPOSITION. 

A more painful and embarrassing situation can hardly 
be imagined for a life insurance agent who has been 
endeavoring to induce a man to do his duty in the 
matter of protecting his wife and children from the pos- 
sible consequences of his untimely death, than to be 
unexpectedly confronted with the active opposition of 
the principal beneficiary, the wife of the person ad- 
dressed. 

It is very much as if one had been refused by the 
owner of property when soliciting him to insure the 
same. It is but natural that many men should feel that 
they do not care to compel their wives to receive in- 
surance money which they; do not desire to have. 

The origin of this opposition should, if possible, be 
investigated by the agent. In many cases it will be 
found to be religious in character, a lingering phase of 
the old idea, of the Greek and Roman theory, that it is 
man's duty to endure and not to resist or attempt to 
avoid misfortunes, which are to be considered acts of 
Providence and not accidents. Women, who retain 
longer than men their religious prejudices, have been 
peculiarly open to this superstition. They even shrink 
from insurance as if it were ''tempting God,'' or making 
certain that the event insured against will speedily come 
to pass. 

Where those objections exist, it will require all pos- 



i86 Things Agents Should Know. 

sible tact on the part of an agent to get a hearing at 
all. Very often they are not rational or well con- 
sidered, but are merely instinctive repulsions of the idea 
of insurance which comes to them accompanied with 
vivid imaginings of a husband's death-bed. Probably 
the best thing that can be done is to present to the 
woman the best possible examples of the patronage of 
insurance by men whom she venerates and also by in- 
sisting upon the argument that the possession of life 
insurance through relieving the husband of worry as to 
the future of his family if he should be called away, 
greatly diminishes the probability of his succumbing to 
illness. 

It will often happen, however, that there are other 
reasons which the agent may not be able to change. 
The wife may have had some project, requiring the ex- 
penditure of money. She may have a greed for saving 
money, not because of its uses, but because of natural 
avariciousness. She may know of some other use which 
she considers that her husband ought to put his money 
to. It may be that there are payments yet to be made 
upon the home or upon other property purchased. 

If the agent can find out what really is the ground 
for her objection, he ought to be able to remove the 
same by showing that life insurance is a most excellent 
way to save and invest money, and that the possession 
of it is a means of protecting other investments. 

Where the wife has felt that her own personal ex- 



II 



Canvassing, 187 

penditures are already unduly restricted it will be found 
a harder task to induce her to give her consent. It may 
be possible to do so, however, if the agent will, in the 
most delicate manner possible, suggest to her how 
much greater would necessarily be her privations if the 
event insured against should occur without there being 
any life insurance to fall back upon. Even this, how- 
ever, will usually be found not to be effective. The 
most potent obstacle in the way of securing applica- 
tions is that the money is urgently desired for some 
other purpose; and this is fully as effective with the 
woman of the house as with the man himself. 

The best way often is to yield the point as far as the 
wife is concerned, and abandon the field. When a wo- 
man, by this sort of conduct, proves her incapacity for 
business, one is justified in the supposition that her hus- 
band will understand that fact and will, if given an op- 
portunity, act independently of her. It has very often 
happened that the husband has been sufficiently im- 
pressed that it is his duty to insure, so that he has se- 
cretly done so despite the prejudice of his wife. While 
from motives of superstition or otherwise women have 
sought to prevent their husbands from insuring, no 
case is so far known of a woman's refusing to accept the" 
proceeds of a policy, though taken without her knowl- 
edge or consent. 

A gentleman, who was once superintendent of an 
agency of a certain company, tells of a case in his ex- 



i88 



Things Agents Should Know, 



perience where the wife sought to prevent her husband 
from accepting a policy for which he had appHed. In 
this case the poHcy was submitted to an attorney, and 
the husband promised to accept it anyhow if the attor- 
ney recommended it. One day not long afterward the H 
wife and her father came into the office to pay the 
premium. Upon being pressed for a reason, it came 
out that the man was probably fatally ill. It thus 
proved that the woman was not averse to securing the 
insurance, now that it was likely to mature at once by 
her husband's death. It is very certain that this would 
be the case as to every w^oman who vigorously opposes 
her husband's insurinof in her favor. 



Canvassing. 189 

A FAVORITE COMPARISON WELL PUT. 

An agent of a Western company recently had an ex- 
perience in which he secured an application by a favorite 
old argument, because he had the skill to put it very 
cleverly. The argument was the analogy of life in- 
surance to fire insurance, which latter practically every 
business man nowadays considers a necessity. The per- 
son approached was a lawyer w^ho did not seem to be 
impressed by any of the ordinary argumicnts or to be 
attracted by insurance as an investment. The rest of 
the story is best told in the agent's own language. 

''Pointing to a fine office building across the way, I 
asked the lawyer if he knew who owned that property. 
Pie said he did. I asked him if the owner should die 
and make him the guardian of the children and admin- 
istrator of the estate, if he, as administrator, would con- 
tinue to lease the building. He said he would, because 
that was the source of income upon which the widow 
and the children must depend for their support. I asked 
him if he should come to his office some morning and 
find the rented building a heap of ruins from a disas- 
trous fire, and the building had no insurance, if he 
thought it possible for him, as guardian, to be success- 
fully defended against the charge of criminal negligence 
for failing, by adequate insurance upon the building, to 
'■ make provisions for those dependent upon the revenues 
of earnings from the building. He unhesitatingly ad- 



^1 

190 Things Agents Should Know, 

mitted that any man who would neglect to make pro- 
vision for the protection of those so dependent ought 
to be jailed in this world and damned in the next. I 
asked him if this looked anything like a life insurance 
provision where a family was depending upon the earn- 
ings of a husband and father. He looked me straight in 
the eye for an instant and said that the picture was a 
revelation to him, and he thought any man that could 
get it and would go without life insurance was a big 
fool." 



Canvassing, 191 

FLL TAKE THE CHANCES." 

When pressed to take life insurance in order to pro- 
tect their dependents, men sometimes make the in- 
appropriate reply: 

'T'll take my chances/' 

A quick-witted agent when confronted with this 
statement will be so far from discouraged that he will 
feel almost certain of landing the man. 

For the answer to such a statement is the simplest in 
the world. The man is not taking the financial chances 
at all. He is merely compelling the helpless persons, 
whose interests are or should be a sacred trust to him, 
to take the chances. 

Moreover, it is sure that, if he is a prudent business 
man, he would not himself take the chances which he 
compels them, to take. 

If he has property which pays him an income that 
would stop if it were destroyed by fire, you may be 
sure that he has it insured. If he had an income de- 
pendent upon the life of another he would certainly pro- 
tect it by insurance. 

Over his income he now exercises control as trustee 
for his family. Therefore, ought he not to protect them 
even more sacredly and certainly than he would pro- 
tect himself? 

Many a clever agent has replied in so many words: 
*'My dear sir, you are not taking the chances; if you 



192 Things Agents Should Know, 

were, I would not say another word. The real trouble jj 
is that nature has endowed us with such hopefulness 
that we do not feel that there is a chance of our dying 
right away. If it was somebody else's life and your in- 
come depended upon it, you would then be able to see 
it. Then you would insure, and it would require no 
persuasion. But it is your family that you are unin- 
tentionally compelling to take this hazard which in all 
probability you would never take yourself.'' 

It is often worth while to show how much greater 
the risk, is than the risks which the man does insure 
against, such as risk of fire, and how much more favor- 
able the terms of insurance than the terms of fire in- 
surance, or other insurance which he carries. 

Thus, for instance, the risk of death at age forty is 
for the single year perhaps at least ten times as great 
as the risk of a detached dwelling being destroyed. 
Moreover, it is an increasing risk converging towards a 
certainty. 

Then there is the additional risk of becoming uninsur- 
able, a risk which, if it applied in fire insurance, would 
make a man even more prompt to insure than at 
present. 

And none of these chances, sir, are you taking. You 
are compelling others to take them. 



ii 



Canvassing, 193 

THE OTHER COMPANY. 

It is related that a famous beauty made it a practice 
to keep about her women of the most unreHeved ugH- 
ness, in order that she might shine the more by contrast. 

If this is true, she was not so clever as she was beauti- 
ful. Even a plain woman would look attractive by such 
a contrast. The triumph of a very beautiful woman 
would consist in being compared with the handsomest 
woman that she could find. 

There are insurance agents who proceed on the same 
diplomatic theory as did this beauty. They seem to 
think that in order to render the policy which they are 
presenting most attractive, it is necessary for them to 
detract from the desirability of the policies of other 
companies. This they do largely by magnifying the 
demerits of the companies. 

There is no credit to a company or to a policy in be- 
ing better than the worst. No rational person would 
oflfer to buy a policy just because it was proved to be 
better than the worst. 

If an agent is really clever he will use the other com- 
pany as a foil; but he will also realize that to make the 
policies of that company seem wholly undesirable is to 
destroy their value for purposes of comparison. 

Therefore, the agent should gladly concede the high 
character of a competing company and the general de- 
sirability of its policy. 



194 Things Agents Should Know, 

Having done this, he will do well if he then delivers 
himself about as follows: ''I am not selling insurance for 
that company, and I will not talk about it or its policy 
except as you may request me. If I thought it was offer- 
ing a more desirable policy and a more salable one, I 
would seek an agency connection with it. I have no 
desire to talk it down. If you bought a policy there 
you would do a good thing. All that I hope to show 
is that you will do a better thing by insuring with my 
own company. Now, let me talk about my policy.'' 

It will even pay to expatiate for some time upon the 
merits of the other company and its policy, especially 
as to those parts where the merits are common to both 
companies. A most fetching effect can be produced 
after having done this by going on to state those ex- 
cellencies of one's own company and its policy which 
are not common to the other. .Thus all the good things 
that one has said concerning the other company become 
strong arguments for insuring, not in the other com- 
pany, but in one's own. 

Even when the other company is bad, it is usually 
wiser, if the person addressed has confidence in it, to 
''damn it with faint praise," and then to proceed to 
blazon forth the excellencies of your own. 

It is not what your competitor offers that you must 
rely upon to sell what you offer. 



i 



Canvassing. 195 

MEETING AN OFFER TO REBATE. 

A successful agent of New York city, perhaps the 
most successful of all life insurance agents there, tells 
a good story of how he headed off a demand for a re- 
bate. The story is worth repeating here because it il- 
lustrates how any capable and quick-witted agent may 
meet such a proposition from a competitor. 

In this case the agent had a ''prospect" who was 
considering a proposition for insurance. When he 
called for the second interview, the ''prospect'' said: 

"Mr. Robinson, I can't do business with you. I have 
been offered much better terms by another company, 
larger and stronger than your own." 

The agent assumed an air of utter chagrin and as- 
tonishment, not unmixed with perplexity, and he de- 
clared that he did not know that any; company was giv- 
ing better terms than his own. He asked for an ex- 
planation, exhibiting the utmost concern. 

The "prospect" explained that he was offered a large 
concession off the first year's premium and, when 
pressed for the name of the company, gave it. The 
agent then, with visible and indeed audible relief, asked 
for the amount of the rebate, which was stated at 75 
per cent. 

All the lines of surprise and solicitude disappeared 
from the agent's face at once, and he sank back in his 
chair with an air of complete relief. 



196 Things Agents Should Know. 

''Why/' he said, ''Mr. Jones, I assure you, that is very 
ordinary rebate for them, very ordinary indeed. I think 
I could get you 90 per cent, myself, and I have known 
several cases where they gave the whole first year's 
premium if the man took insurance enough. That is 
only the shave they feel compelled to make in order to 
have their policies look at all attractive, compared with 
several other companies. Really you would be robbed 
if you did not get more than that; you wouldn't get as 
good a deal as the average." 

The emotions of the customer as this was being said 
unconcernedly, but frankly, could be plainly traced on 
his face. 

"You pay for it all," continued the agent* "They 
take care of that. They fixed their premiums so as to 
allow this without loss. Why, sir, in comparison with 
that we will give you 150 per cent." 

It was now the "prospect's" turn to be astonished, 
and he said: 

"Surely you don't mean to tell me that you will give 
ofif the whole first year's premium and one-half the 
second?" 

The agent carefully avoided the question by replying: 

"We give you 150 per cent.; but we don't do it unless 
we know that you are going to continue. Of course 
you are not buying this policy for one year only. It is 
a twenty-year contract and you intend to keep it for 
the twenty years. Now as compared with their pre- 



Canvassing. 197 

mium, we give you so much off each year, that is, a Httle 
over 7^ per cent., so during the twenty years we have 
given you 150 per cent. We don't call it rebating. You ' 
may if you want to. The point is, anyhow, that for the 
75 per cent, which they give you the first year, if you 
take their policy and go ahead, you pay them 150 per 
cent. 

The "prospect'^ saw the point, and the offer of a * 
rebate was thus successfully met in competition without 
granting one. 



Don 



TS. 



NOT TOO MANY FIGURES! 

The average novice in life insurance is disposed to 
indulge in figures; in fact, he overwhelms his "prospect" 
with figures. 

Generally, if he is a successful agent, he will diminish 
the supply of figures until he hardly quotes more than 
the rate of one policy to any one ''prospect." 

From the standpoint of pure reason it would appear 
that in order to afford a man an opportunity to select 
intelligently, one ought to show him all the policies 
he has in stock. 

Selecting goods, however, does not proceed on the 
line of pure reason; it is really a psychological affair. 
The purchaser is attracted, not by modes of conscious 
reason wholly or even principally, but by moods of un- 
conscious selection. 

Therefore is it that the clever salesman avoids con- 
fusing the buyer. Thus a clerk in a dry goods store 
gets out but one bolt of cloth for his customer. If that 
plainly does not please it is thrust aside and forgotten, 

198 



Doiits. 199 

and he takes down another. These are presented, how- 
ever, in succession, and the second is presented only 
when the first does not fill the bill. If he finds one that 
pleases pretty well but the customer requires to be 
shown other pieces, he shows them, but constantly re- 
verts to the one that pleased pretty well, hoping thus 
to cause a higher desire for it. 

A certain general agent in life insurance once devised 
a proposition form which made quite an imposing 
pamphlet, and gave figures for each form of policy of- 
fered by the company at the age of the ''prospect.'' 
Those who consider life insurance soliciting an appeal 
to pure reason would expect such a form to be an aid 
to success. 

That is, how^ever, probably, precisely not the case. 
Any success that the agent in using it may have had is 
attributable to himself. He succeeded not because of 
but in spite of that proposition form. 

For you may be sure he presented the virtues of one 
of the policies strongly, and, when the ''prospect" 
looked at the other forms, he employed the same tac- 
tics as the dry goods salesman to bring the "prospect" 
constantly back to the form of policy which the agent 
had himself selected. 

Unless your customer demands it, do not furnish 
more figures than are absolutely necessary to make him 
understand the policy which you wish to sell. Of course, 
if he should demand to see others, they should be ex- 



200 Things Agents Should Know, 

hibited, and in that case there is sometimes a positive 
advantage in showing many policies, so that in con- 
fusion the ''prospect" may fall back to the plain, simple 
proposition originally made to him. 



1 



Don'ts, 201 

DONT THROW IN AN EDUCATION. 

There are bright and capable general agents who take 
alarm at once about an agent's prospects for success 
when they see him devoting too much attention to 
mastering the intricacies of actuarial science. 

This sense of alarm is not occasioned by their fear 
that he will know too much. An agent cannot possibly 
know too much about his business. The fear is that he 
will try to tell too much. 

These general agents say that such agents are very 
likely to confuse their customers in a maze of figures 
and theories instead of bending their energies to in- 
terest them in life insurance and to convince them that 
they desire it. 

The moral of this is not to avoid learning any useful 
thing you can about your business, but to avoid inflict- 
ing an elementary education upon persons who unsus- 
pectingly grant you interviews, supposing that you are 
going to talk about something which will interest them. 

These persons do not wish educations in actuarial 
lore. At least, if they do, you ought to charge them 
directly for the time devoted to educating them. If you 
will name a price per hour for this service, you will soon 
discover whether that is what they want. 

If, in spite of the fact that their wants and your own 
both point to talking the merits of insurance in a very 
concrete and not in an abstract fashion, you do give 



202 Things Agents Should Know. 

these persons actuarial educations, two things will result 
in nearly every case; first, you will have turned out very 
poor graduates in the science, and, second, you will have 
lost them as customers. 

There are physicians who parade their technical lore 
before the admiring eyes of their patients, and these are 
not the physicians whom these patients employ when 
they are really sick. The still and studious man who 
has not devoted his time to educating them is the one 
who is then called in. 

Know all you can learn, but do not feel called upon 
to tell all you know, in season and out of season, and 
especially not to the very man whom you wish to in- 
terest in the concrete benefits of life insurance. If you 
must have a class in actuarial science, practice on people 
other than those from whom you hope to draw your 
subsistence for quite another service. 



Don'ts. 203 

DONT MIX LINES. 

There is an old warning from men who are wise with 
the experience of many drinking bouts that he who 
would put his comrades under the table should not ''mix 
drinks." 

Of course, a life insurance agent who expects to suc- 
ceed does not drink at all, especially during business 
hours; therefore this warning has no special application 
to him. 

But there is one very like it which is of the highest 
importance to him, and that is, ''Don't mix lines." 

Theoretically, the different branches of insurance are 
very closely related and might as well be attended to 
by one agent in a community. Practically they are the 
most uncomfortable bed-fellows or the most unmanage- 
able team, to alter the simile. 

"One thing at a time and that thing well done," ap- 
plies with especial force to the work of an agent who 
hopes to be successful. There are, perhaps, a dozen 
agents in the entire United States who have made some 
kind of success in what may be called a general in- 
surance business, including' everything from hail insur- 
ance to health insurance. 

Concerning these few, it may be that they are the ex- 
ceptions which prove the rule. Moreover, their case 
may be characterized by the witty reply of a temperance 
advocate to the quotation of the case of a man who 



204 Things Agents Should Know. 

had lived to be one hundred, although addicted to to- 
bacco and whiskey. The temperance man said: ''He 
might have lived to be a hundred and fifty if he had 
left them alone." 

Nobody can tell how much more successful the pro- 
prietor of a promiscuous insurance agency might have 
been if he had stuck to one line. 

But everybody knows who has examined into the 
matter at all that thousands who are successful in one 
line of insurance do make lamentable failures when they 
attempt to ''mix lines." 

It is a great temptation to the average life insurance 
agent when a line of fire insurance offers itself ripe for 
the plucking, as it is also to a fire insurance agent when 
an application for life insurance seems ready to drop ofif 
the tree. In both cases appearances are likely to be de- 
lusive. Of course, in sporadic cases the business does 
come without any effort; either agent may then be a 
broker in the other line for the nonce. 

But danger lurks in it. The agent plying either line 
who permits his attention to be distracted by apparent 
opportunities to profit by changing the direction of his 
efforts will almost surely end in not making a success 
at all. 

*'Let the cobbler stick to his last" and the insurance 
agent to his particular line. 



Don'ts. 205 

DON'T BE OFFENSIVE. 

The art of selling being based on psychology, it 
sometimes happens that an agent is over-impressed with 
its psychological character, and is disposed to influence 
men by hypnotic means rather than by persuasion. 

This is commonly the meaning of it when an agent 
thrusts himself too close to his customer, and espe- 
cially when he gets right up to him and stares into his 
eyes. 

Almost all men intuitively resent this conduct. The 
only exceptions are those weak individuals who feel that 
they are being honored by the agent's attentions. In 
their cases this system may be effectual, but it is not 
needed, excepting, perhaps, to crowd more insurance 
upon them than they ought to buy. 

The agent who attempts to influence men in this 
manner runs a number of serious risks, not to speak 
of the gross effrontery and vulgarity of his conduct. 

Aside from the great danger of provoking the resent- 
ment of his customer, he also runs the risk of offending 
by some disagreeable smell of his person or breath. 

In this catarrhal country very few persons have 
agreeable breaths. In the case of most men the foulness 
of the breath is increased by the use of tobacco and 
liquors. It is no more than decent, therefore, to give 
your customer the benefit of the doubt, and to remain 
at a respectful distance from him. 



2o6 Things Agents Should Know, 

Another effect of the catarrhal disorders peculiar to 
our climate is that the sense of smell is defective in 
many men. Thus the agent may not know that the 
odors of his own person are disagreeable. He should, 
of course, try to render this unlikely by the most scrupu- 
/ lous cleanliness, but some persons exude a stench which ^ 
not even cleanliness will completely remove. 

The only safe course is for the agent to hold himself 
sufficiently aloof from the man whom he is addressing 
to assure that he will not offend, either by appearing 
to be insultingly forward or by some offensive smell. 
Any gain that he thinks he scores by the hypnotic in- 
fluence of his staring eyes is certain to be more than 
offset by the continual refusal of men to deal with him 
without assigning any reason therefor. 



Don'ts, 207 

DONT FACE THE WINDOW. 

There are some small rules in soliciting which are of 
importance in inverse ratio to their size. One of them 
is: ''Don't sit facing the light.*' 

Did you ever, when a boy, experiment with a cat's 
eyes and observe how their pupils contract into the 
narrowest kind of a slit when exposed to a bright light? 
. To look into eyes which are thus contracted is not 
pleasant, and it is also not reassuring. The pain of 
such a light, likewise, causes one to shelter the eye 
with the lids and lashes. This gives him a furtive ap- 
pearance. 

If there is any one thing that a salesman should de- 
sire it is that he should impress his customer with the 
earnestness which he really feels. To fail to do this is 
fatal. 

It might be different if the customer himself had any 
idea of what the cause of the contraction of the pupil 
and the closing of the lids really is. But the fact is that 
the customer usually will not know this, and that he 
will not even know that they are contracted. 

The effect on him will be negative. It will merely 
mean that you failed to make an impression. Once in 
a while, of course, you may impress him in a sinister 
manner, but that will be an exception. As a rule the 
only result of locating yourself in an unfavorable light 
will be to diminish the potency of your plea. 



208 



Things Agents Should Know. 



There are some men who understand that you are at 
a disadvantage when so situated, and who locate their 
desks purposely so that the light shall shine on them 
from the rear, which is an advantage to themselves in 
their work, and also so that in negotiation with patrons 
they will have the advantage. 

Commonly, however, the agent will be able to select 
his position, and he should avoid facing the window or 
a bright light. 



Doit'ts, 209 

DONT OVERLOAD YOUR CUSTOMER. 

One of the mistakes of life insurance agents is to 
press upon such of their patrons as are easily persuaded 
more insurance than they can carry. 

This fault, no doubt, existed before, but it has been 
greatly aggravated by high-pressure sytems, under 
which it is generally to an agent's interest to write a 
good amount of business at all hazards. 

The natural penalty for overburdening customers is 
to lose the renewals on the business, the customers be- 
coming unable to pay the premiums. A further penalty 
is to have their ill-will, and to have created among their 
acquaintances the sentiment that life insurance is not a 
good thing. 

One reason, no doubt, why this evil practice obtains 
so frequently among agents who work under bonus 
contracts is that these agents usually escape entirely the 
first of these penalties, since they do not expect renewals 
at all, and in many cases also escape the second penalty 
because they do not operate long in one field. Of 
course, they do not get away unscathed; but the com- 
pensations may be dealt with in another place. Suffice 
it to say that to be compelled to move in order to do 
business, in order to avoid one's old customers, would 
be a sufficient punishment to most men. 

In no part of the agent's work is it more desirable that 
he follow the old motto, "Put yourself in his place," 



2IO Things Agents Should Know. 

than in this matter of overloading customers. There is 
a certain reasonable amount of insurance which a man 
with a moderate income can afford to take on. The 
agent should be so far from encouraging him to take 
more that, even if he discerns such a disposition on 
his "prospect's" part, he ought to discourage it by all 
proper means. He certainly ought to avoid any possi- 
bility that he would be held responsible for the mis- 
take. 

Customers who have purchased policies with which 
they are satisfied and which they are able to carry with- 
out difficulty are the best advertisements that an agent 
can have. The more such persons there are in the »| 
community in which he works the easier it ought to be 
for him to sell insurance. Precisely the contrary will 
be the case if any considerable number have been com- || 
pelled to drop their policies because under his persua- 
sion they undertook too much. Others will thus be led 
to look upon his persuasive powers with suspicion, and 
much of his argument will be lost. 



Don'ts, 211 



NEITHER A PLUNGER NOR A PLODDER BE. 

It is not necessary to refer to the old fable of the 
hare and tortoise other than to say that both of these 
types are familiar objects in insurance soliciting. More- 
over, the best of both types are successful. The moral 
of the old fable, that it is only the tortoise that ''gets 
there/' is not applicable to soliciting. 

The fact is, on the contrary, that in some lines of in- 
surance soliciting, and especially in life insurance, the 
majority of all the successful agents commanding the 
largest incomes are those who have spurts of great 
energy with intervals of almost absolute indolence. 

In fact the chief of the agency force of a large com- 
pany once said at an agents' banquet in New York that 
this was the only kind of an agent that he believed in. 

Notwithstanding which an officer of another company 
has told the story of a plain and unassuming man who 
worked as many hours as he could every day in the 
year and with a remarkable uniformity of production in 
spite of very decidedly inferior abilities. 

The fact is that men of great energy and force are 
necessarily unequal at times. It is impossible for them 
to keep themselves keyed up to the highest pitch con- 
tinually. 

Some kinds of insurance soliciting require that at 
certain exigencies an agent should bring to bear all the 



212 



Things Agents Should Know, 



forces within him, and to fail to do this is to fail of suc- 
cess. 

Naturally no man can do this all the time. There is, 
of course, reaction and relaxation. Nature demands a 
rest. If the agent does not take this rest he will find 
that he works for a time under a cloud, without being 
able to focus his attention as he ought. 

The agent should have a due regard for the fact that 
the extraordinary strain upon mental energy calls for 
rest and reaction to recuperate his powers. If he will 
take this into account and act accordingly he will find 
that he need neither be a plunger nor a plodder. 



Donts. 213 

DONT CURRY SYMPATHY. 

There is a pat, if somewhat hardhearted, motto which 
some business men hang up in their offices. It reads: 
*'We have troubles of our own." 

Perhaps nobody is more of a nuisance or more certain 
to fail of success than the agent who is constantly pour- 
ing his troubles, his disappointments^, his difficulties into 
the ears of those whom he would have to deal with him. 

If there were no other reason for not doing this the 
fact that he impresses a dolorous and depressed senti- 
ment upon the conversation would be sufficient. It 
takes courage and spirit in a man to decide that he will 
insure. Depression and disappointment are inimical to 
this decision. 

Moreover, where a man will take $1,000 insurance 
out of sympathy he will take $10,000 because you have 
convinced him that he wants it and have impressed him 
that you are accustomed to being successful in selling it. 
If you do not so impress him he thinks you must have 
something folks will not buy. 

Men have troubles of their own. If you are bright, 
cheerful and apparently prosperous you may be able to 
cheer them up and make them more hopeful. This will 
not only induce the spirit which will result in an appli- 
cation; it will also induce an unconscious sense of grati- 
tude to you which will result in the application going to 
you. 



214 



Things Agents Should Know. 



It has been said that misery loves company, but it has 
not been said that company loves misery. It Is the 
other man and not yourself you must please. The com- 
mission which you will receive if you do your work so 
as to please him will please you far more than any sym- 
pathy that you might wring out of him. 

Our American poetess, Ella Wheeler Wilcox, never 
wrote truer lines than "Laugh and the world laughs 
with you; weep and you weep alone." 

If you have any weeping to do do it alone. For your 
customers save your smiles. 



Policy Features, 



THE FIRST APPEARANCE OF NON- 
FORFEITURE. 

The New York Life Insurance Company was the first 
in the United States to introduce non-forfeiture policies. 
This was in 1863, and the poHcy was a ten-payment life, 
which, after two annual premiums had been paid, en- 
titled the insured to a paid-up policy for as many tenths 
of the original amount as there were annual premiums 
paid. 

This policy was not, as will be seen by its terms, 
really non-forfeitable even for a fractional amount, the 
insured being required to surrender the original policy 
and apply for a paid-up policy instead. Elizur Wright 
called this to the attention of the company and in- 
quired whether, if this were neglected, the company 
would consider itself bound for the payment of the 
fractional amount. In reply, he received the following 
letter, which was printed in his report for 1865, as Com- 
missioner of Massachusetts: 

215 , _. ^^. 



2i6 Things Agents Should Know. 

Office of the New York Life Insurance Company, 

New York, March 4th, 1864. 
Hon. Elizur Wright, Boston. 

Dear Sir: — Your favor of the second is at hand. We had 
supposed there could be no question in reference to the clause 
in our ten-payment policies. Whatever may be the legal con- 
struction, however, our practice has been, when such a policy 
ceases after two payments, to consider it a paid policy, even 
though the surrender should not have been made, and we con- 
sequently place it among our liabilities, and of course should 
pay it in case of death. Upon policies in which premium notes 
have been given, the company now requires that the surrender 
should be made within a year, as the interest on such notes is 
required to be paid annually; but for cash policies, no limitation 
is fixed. 
I remain, with great respect, your obedient servant, 

MORRIS FRANKLIN, 

President. 



4 



Ten-payment life policies had been issued by nearly 
all companies before this time, but they had not been 
made non-forfeitable. The number of limited payment 
life policies, which were mainly ten-payment, issued in 
the year 1863, was as follows: 

New York Life, N. Y., 1,707; Connecticut Mutual, 
Conn., 567; Mutual Benefit, N. J., 356; Union Mutual, 
Me., 219; Wisconsin Mutual, Wis., 149; Charter Oak, 
Conn., 116; Mutual Life, N. Y., iii; Home Life, N. Y., 
loi; Phoenix, 58; New England, 50; Manhattan, N. Y., 
50; Knickerbocker, N. Y., 47; Massachusetts Mutual, 
44; Equitable, N. Y., 44; Guardian, N. Y., 43; Ger- 



Policy Features, 217 

mania, N. Y., 28; United States, N. Y., 25; Security, 
N. Y., 17; Berkshire, 12; National, Vt., 6; North Amer- 
ica, N. Y., I. 

While none of the other companies had made such 
policies non-forfeitable up to this time, several of them 
followed the New York Life at no great interval, and 
the Mutual Benefit offered the alternative to the appli- 
cant either to take a limited payment policy of tlie usual 
form or, at a reduced premium, to take a policy which 
would bind the company only for tenths as the pre- 
miums were paid; that is to say, $100 the first year, 
$200 the second year, etc. The difference in the cost 
was about fifteen per cent. Thus at age thirty, $52.33 
per annum was charged for a ten-payment life policy 
and $45.83 for the other form. 

The popularity of the non-forfeiture plan in the New 
York Life was sufficiently attested by the experience of 
1863. The next year nearly every company adopted the 
non-forfeiture idea and the result was that 11,068 limited 
payment policies were sold, instead of 3,828. The Mu- 
tual Benefit, New York, Connecticut Mutual, ^tna and 
Northwestern got much the larger part of this business, 
they having been the first to actively push the non- 
forfeiture feature. 



2i8 Things Agents Should Knoiv. 

THE BEGINNING OF CASH SURRENDERS. 

When the Equitable of London began business in 
1762 there was no expectation of cash surrender values 
in case of discontinuance, and for many years the com- 
pany allowed none. Dividends were declared in the form 
of reversions, and just as the amount insured, for a very 
long time these reversions were also lost by discontinu- 
ance. The idea of a cash surrender value was first intro- 
duced in the form of purchasing these reversionary addi- 
tions ; and, after a time, one was permitted to surrender 
the additions for cash without surrendering the original 
policy. It was yet a long time before the original pol- 
icies were themselves purchased by the company, and in 
fact they were purchased for a long while by persons 
looking for a profitable speculation before the company 
consented to allow cash on surrender. 

About 1826, however, when Chas. Babbage published 
his Comparative View of the Various Institutions for the 
Assurance of Lives, there had been a considerable change 
in this particular. Very many companies allowed cash 
surrender values, according to Babbage, who says: 
''Most of the societies are willing to purchase their own 
policies; but the prices they oflfer are generally regarded 
as very low. This probably arises in some measure from 
some persons, who propose surrendering their policies, 
not making due allowance for the risk which the so- 
ciety has already run and for which it ought certainly 



Policy Features. 219 

to be paid. Thus it happens that a person who has been 
paying £^0 annually for ten years is surprised at the 
small sum offered for a policy which has cost him £500. 
He should, however, remember that the office has run 
the risk of his dying during that time, which event, had 
it happened, would have made them losers of perhaps 
ii,ooo or £1,500." 

It also appears that at least two companies, the ^gis 
and Economic, had already adopted the plan of stating 
in the policies definitely how much the company would 
pay. Thus the latter wrote on the back of the policy 
the amount which the company would pay for its sur- 
render after the expiration of any number of years be- 
yond five; while, as Mr. Babbage says in his preface, the 
^gis "will at any time purchase any of its policies which 
have been granted for the whole duration of life, for 
one-third of the amount of all the premiums which may 
have been paid on it." 

The author was himself strongly favorable to the pay- 
ment of cash surrenders when desired. The following 
is his argument on the subject, which, it will be ob- 
served, strikes at the yet familiar pretense that the in- 
sured are not to be trusted to make the choice for them- 
selves: ''When a person resolves, annually, to lay aside 
a certain portion of his income to accumulate at com- 
pound interest, he has, after a few years, always a fund, 
to which on extraordinary occasions he can apply; and 
if any temptation of luxury or any expected expense 



220 Things Agents Should Knozv, 

should present itself it is much more probable that he 
will encroach on this fund than resist the one or supply 
the other by a diminution in a different branch of his 
expenditures. If, on the contrary, he had employed the 
same sum in an annual premium for the assurance, 
it would require some time to elapse before he could 
dispose of his policy to advantage; and to whatever 
inconvenience he might be put, his premiums would 
probably be the last disbursement that he would al- 
low to remain unpaid. The argument rests partly 
on the difficulty of getting, at a short notice, a fair 
price for a policy of some years' standing; a diffi- 
culty which I shall propose afterwards to remove. The 
inconsistency is, however, only an apparent one; on the 
whole, I believe it to be more advantageous to make 
the values of a policy known, and its property transfer- 
able to the greatest extent; and it will be easy for those 
who, feeling conscious of their inability to withstand 
temptation, wash not to possess so ready and immediate 
a mode of parting with their policy, to have that clause 
in it omitted (which is to bind the office to purchase it 
at a certain price), or else to allow some friend to hold 
it in trust.'' 



Policy Features. 221 

EQUITABLE VALUE OF POLICIES. 

The following are the closing words of the famous 
decision of the United States Supreme Court as to the 
rights of Southern policyholders under policies which 
had lapsed owing to the cutting off of communication 
by the rebellion: 'We are of the opinion, therefore, first, 
that the company having elected to insist upon the con- 
dition in these cases, the policies in question must be 
regarded as extinguished by the non-payment of the 
premium though caused by the existence of the war, 
and that an action will not lie for the amount insured 
thereon. Second, that such failure being caused by a 
public war, without the fault of the assured, they are 
entitled ex alqiio et bono to recover the equitable value 
of the policies, with interest, from the close of the war. 
It results from these conclusions that the several judg- 
ments and decrees in the cases before us, being in favor 
of the plaintiffs for the whole sum assured, must be re- 
versed, and the records remanded for further proceed- 
ings. We perceive that declarations in actions at law 
contain no common rule applicable to the kind of relief, 
which according to our decision, the plaintiffs are en- 
titled to demand; but parties were necessarily in the 
dark with regard to their precise rights and remedies. 
We think it fair and just that they should be allowed 
to amend their pleadings. In the equitable suit, per- 
haps, the prayer for alternative relief might be sufficient 



222 Things Agents Should Know, 

to sustain a proper decree; but, nevertheless, the com- 
plainants should be allowed to -amend their bill, if they 
shall be so advised. In estimating the equitable value of a 
policy, no reduction shoidd be made from the precise amount, 
which calculations give, as is sometimes done where policies 
are voluntarily surrendered for the purpose of discouraging 
such surrenders, and the value should be taken as of the day 
when the first defaidt occurred in the payment of the pre- 
mium by zvhich the policy became forfeited. (The rates of 
mortality and interest used in tables of the company will 
form the basis of calcidation.) The decree in equity suit 
and judgment in the actions at law are reversed, and the 
causes respectively remanded to be proceeded in ac- 
cording to the law and the directions of this opinion." 

This decision was concurred in by five judges, four, 
including the chief justice, dissenting. Only one of these, 
the chief justice, however, based his dissent upon the 
proposition that there was no such thing as an equitable 
surrender value. Concerning this matter. Chief Justice 
Strong gave his dissenting opinion: "This is incompre- 
hensible to me. I think it has never before been decided 
that the surrender value of the policy can be recovered 
by an assured unless there has been an agreement be- 
tween the parties for a surrender, and certainly it has 
not before been decided that a supervening state of war 
makes a contract between parties or raises an impli- 
cation of one.'' 

This decision of the Supreme Court is especially im- 



Policy Features. 223 

portant, as it was the first declaration that there was an 
equitable right to have a surrender value, and that such 
surrender value, in the absence of a more explicit agree- 
ment, might be held to be the full reserve upon the 
policy. 



224 Things Agents Should Know. 

AN ENGLISH AUTHORITY ON SURRENDER 

VALUES. 

Actuary Newman^ a distinguished member of his pro- 
fession in Great Britain, recently deHvered himself on 
the subject of the surrender values granted by some 
British companies in the following stirring language: 

*'I regret to record that it was commonly held in the 
early days of life assurance in this country, and even 
down to our own day, that a policyholder had no right, 
at any time, to a surrender value — that it was no part 
of the contract, and so on, very much after the manner 
of some of the extracts I have submitted to you to- 
night. Even now I observe in the board of trade re- 
turns such remarks as 'The company do not undertake 
to make allowances on surrenders.' 'This office has no 
table of minimum surrender values.' 'The amount de- 
pends upon the circumstances of each case,' and 'No 
fixed rule is adopted.' What is most regretable in the 
above quotations is the acknowledgment that each case 
is dealt with arbitrarily^, and that no rule seems to be 
adopted. It is impossible for an office to investigate 
the state of health of each case of surrender, nor is it 
done. A fixed reserve is held for each policy, accord- 
ing to rule, not according to caprice^ and it is deplor- 
able that an office should state that it deals with its re- 
tiring policyholder in an arbitrary manner. The prob- 
able explanation is that the surrender values allowed 



Policy Features. 225 

by these offices are so small that they do not wish to 
publish them. This is, in my opinion, a short-sighted 
policy, and I trust that in time such statements will dis- 
appear." 

The sentiment that every company should allow a 
just and fair surrender value upon discontinuance has 
gained such force in recent years that the company 
which resists the demand of the public in this regard 
certainly appears to put itself at a great disadvantage 
in the field. 



226 Things Agents Should Know. 

THE GENESIS OF ANNUAL DIVIDENDS. 

In the beginning life insurance companies did not 
contemplate dividends. It was fully expected in the 
Equitable Society of London that there would be little 
or no surplus. In fact most impartial critics expected 
the losses to exceed the premiums, and it was only after 
it was demonstrated that the London table, adopted 
when the society was founded by Thomas Simpson, re- 
ported a much higher mortality than the society was 
experiencing that a system of returning overpayments 
in the form of an increased insurance was adopted. 
These distributions, however, were made at long in- 
tervals. 

The wonderful success of this society, which con- 
tinues equally successful to this day, naturally caused 
many others to be organized, and quite as naturally in- 
fluenced them to adopt plans closely similar. Of course 
there were departures every now and then which, it was 
thought, would bring increased popularity; but, on the 
whole, they stuck pretty close to the plans of the Equit- 
able. 

In the matter of divisions of surplus they followed the 
company so closely as to introduce no system of divid- 
ing surplus which called for divisions oftener than once 
in five years at least. Many of the companies did not 
divide oftener than once in seven years or ten years. 

One reason given for this comparatively long period 



Policy Features. 227 

was that it required such an enormous amount of labor 
on the part of the actuarial force, labor which was also 
very expensive. The work of an actuary being so little 
understood, this excuse was generally credited. 

There was also offered a claim that by permitting the 
profits to accumulate they amounted to a very much 
larger sum for each individual surviving, being in- 
creased both by compound interest and also by decre- 
ment of the number who survived and whose policies 
were kept in force. This will be recognized as the mod- 
ern deferred dividend argument, always more or less 
delusive. 

The distinguished actuary, Charles Babbage, in 1826 
combated these views as follows: 'The reason assigned 
for these long intervals has been the difficulty of calcu- 
lations on which valuations are founded. This difficulty 
has, I am inclined to believe, been considerably over- 
rated; and, by the aid of an improved system of keeping 
the accounts and tables properly adapted to the purpose 
it would be by no means difficult to assign annually to 
each assurer his proportion of the profits which may 
have accrued during the past year. Another system 
which operates more than perhaps will be allowed, both 
in this and in other arrangements, is that by dividing the 
profits at distant intervals a larger nominal sum is as- 
signed to the assurers. It ought, however, to be re- 
membered that the assurer is not really benefited by 
this specious appearance; and that, whether the money 



228 Things Agents Should Know, 

given as a bonus accumulates in the hands of the society 
or in his own its amount will at the stated periods be 
precisely the same. It may be presumed that annual 
divisions of profit will be liable to fluctuate in their 
amount more considerably than those made at more 
distant intervals. This is likely to be the case, but the 
remedy is obvious; instead of determining the bonus by 
the profits of the preceding year alone it may be made 
from an average of any given number of the preceding 
years, the larger this number the more uniform the 
amount will be.'' 

Singularly enough annual dividends were first 
adopted by the very oldest of all life insurance societies, 
the Amicable, which was, however, little better than an 
assessment society of the modern type, and which^ al- 
though it sought to reform itself, was doomed to suc- 
cumb because of the imperfections of its plans. Not 
long afterward, however, the annual dividend plan was 
adopted by other companies of a more permanent type; 
but nowhere abroad, except in Australia, has it been so 
popular as in the United States. Its adoption by the 
Mutual Life Insurance Company, followed by practi- 
cally all other companies in this country, may be directly 
traced to the influence of Mr. Babbage upon the mind 
of Sheppard Homans, the actuary of the Mutual Life 
Insurance Company. 

Mr. Babbage very thoroughly discusses the subject 
and gives the following final conclusion: 'The system 



Policy Features, 229 

of a septennial division of profits, which is the one most 
generally adopted, is preferable to that of the Equitable 
Society, but is still inferior to a period of five years, 
whilst an annual division distributes the profits with 
more regularity and justice than any other. In such a 
system the nominal sums apportioned may not be so 
large, but the real advantage to the assured is more 
uniformly distributed." 



230 Things Agents Should Know. 

EARLY DIVIDEND PLANS IN THE UNITED 

STATES. 

When dividends began to be declared by life insur- I 
ance companies in the United States they took one of : 
two forms^ viz., they were either declared in the form j 
of scrip, redeemable in cash after a certain number of j 
years and bearing interest in the meantime, or else in ! 
the form of reversions, which are now known as paid-up 
additions to the sum insured. 

The first of these forms was very soon abandoned. 
Its use in any company did not last so long as ten 
years. The rate of interest paid was ordinarily six per 
cent., and the advantage of the company's continuing to 
hold the money instead of paying it over in cash divi- 
dends was very doubtful. 

. The other plan of purchasing with the surplus paid-up 
additions to the amount insured was popular, and con- 
tinued to be in vogue for a long time. Indeed, it still 
remains one of the optional forms commonly offered 
holders of participating policies. 

The Mutual Life Insurance Company was one of the 
first to popularize this plan; and the great success of the 
company in its earliest years is largely attributed to , 
its popularity. When later the companies all began to { 
give annual cash dividends, the Mutual Life Insurance \ 
Company continued to declare its dividends in rever- j 
sion, but merely added the privilege to convert those i 



Policy Features, 231 

reversions into cash, either at the time the dividend was 
declared or at any future anniversary of the poHcy. 

It was quite a long time, however, after the adoption 
of the reversion plan before the company granted this 
privilege. Indeed, in 1859 the Commissioners of Mass-' 
achusetts in their report called attention to the fact that 
not only did the companies which gave reversionary 
dividends refuse to permit them to be converted into 
cash, but also that when the insured lapsed such a policy 
by non-payment of premium he forfeited not merely the 
original insurance but also the dividend additions which 
were fully paid for. The impropriety and injustice of 
this was so manifest that it became one of the strongest 
arguments in favor of enacting the Massachusetts non- 
forfeiture laws. 



232 Things Agents Should Know, 



DIVIDENDS AND INTEREST. 

It is supposed that dividends and interest have a close 
connection, so close, indeed, that if the dividend paid by 
a stock company which commands confidence should 
become a materially larger percentage on its stock than 
the current rates of interest the price of the stock may 
be expected to rise so that the dividend paid will no 
longer be a very large rate on the investment. 

In life insurance there is a closer connection between 
interest and dividends. The fact is that dividends de- 
pend in a large degree on the interest realized. As is 
well known there are three principal sources of divi- 
dends — salvage on the mortality estimates, salvage on 
the expense estimates, and interest over the assumed 
rate. At one time the interest gains were, on the whole, 
far the most important of the three. Nowadays gains 
from the expense provisions are almost nothing in most 
cases, and in companies which assume four per cent, as 
the rate required to make good their reserves the gain 
from interest is not large. 

It is valuable for an agent when met by the objection 
that the dividends in life insurance have been declining 
to have in his possession some certain knowledge con- 
cerning the rates of interest which were earned in the 
good old days by life insurance companies. The knowl- 
edge will serve also to enable an agent to explain how it 



Policy Features. 



233 



has happened that the surplus estimates of those days 
have, as a matter of fact, proved disappointing. 

As an ilkistration of the fall in interest the following 
statement of the rates of interest secured in 1872 is 
quoted from the American Life Assurance Magazine of 
1873: 



American Popular 7 

Anchor 7 

Brooklyn 7 

Connecticut General 8 

Continental, Connecticut. 6% 

Continental, New York. . 7 

Craftsmen's 6 

Delaware Mutual 6 

Empire State 6V2 

Equitable 7 

Germania 6% 

Globe Mutual 6tV 

Government Security ... 7 

Guardian 6V2 

Hartford yVz 

Home, New York 7 

Hope Mutual 6 



Life Association o f 

America 10 

Mutual, New York 6V2 

National Capitol 6^/^ 

National, Vermont 7 

National, New York 7 

National, D. C 6xV 

New Jersey 6 

Northwestern 7% 

Penn Mutual 6 

Phoenix Mutual 9 

Provident 6V2 

Republic 9 

Travelers' 7% 

United States 6% 

Washington 7 

World Mutual 6V2 



Many of the companies have passed out of existence, 
including the one which was at that time earning the 
largest rate of interest; but enough of them remain to 
institute a direct comparison, and the rates of interest 
secured by them in 1898 can be contrasted with the 
rates realized in 1872^ for an explanation of the fall of 
dividends. 



234 Things Agents Should Know. 

ANNUAL VERSUS DEFERRED DIVIDENDS. 

Probably as long as mutual life insurance shall en- 
dure there will continue to be differences of opinion as 
to whether dividends should be annual or deferred for 
longer periods. The early practice in the United States 
was to declare dividends at periods of from three to five 
years; and it was only after a considerable time that 
the annual system came in. It became so popular that 
every company in the country adopted it. One of the 
first to urge it was Elizur Wright, then Commissioner 
of Massachusetts. In his report for 1863 he spoke as 
follows: ''As a company by letting its reserve sink too 
low may insure its old members partly at the expense 
of the new ones, so by maintaining too high reserve it 
may commit the opposite fault of attracting new busi- 
ness at the expense of the old. While the surplus is 
kept accumulating the members who have contributed 
to make it are constantly passing away. Hence the 
importance of frequent periods of division. These 
periods are usually fixed in the charter, one, three or 
five years apart. The smaller the company the more 
reason for having the period long; and the larger, the 
less. The longer the period, especially if the company 
be a large one of many years' standing, the stronger is 
the demand of equity that the division should not only 
exhaust the surplus but be made with a regard to both 
the true margins of the actual premiums, and the ex- 



Policy Features. 235 

cess of the actual interest over the assumed as appHed 
to the reserve on each pohcy." 

The argument for deferred dividends, which singu- 
larly enough became at a later date immensely more 
popular than annual dividends had been, is about as 
follows: The inducements to persist in life insurance, 
taking into account the known tendency to drop poli- 
cies which one has taken, should be multiplied as 
much as possible. The best way to encourage this is 
to add to the fear of financial loss because of forfeitures^ 
the expectation of financial gain because of surplus ac- 
cumulations. Indeed, it is held with much plausibility 
that the hope of reward is more effective than the fear 
of punishment; and that the insured will persist in order 
to obtain a dividend when a surrender charge, deducted 
from the reserve, would not deter them from withdraw- 
ing. 

The reason for this, it is thought, is because a de- 
ferred dividend period sets before the man a definite 
program which he has, before taking the policy, deter- 
mined to carry out, and he thus has a definite end in 
view. It is considered that he is far more likely to 
work steadfastly up to the program under these circum- 
stances than he is to continue what is merely a life in- 
surance. 



236 Things Agents Should Know. 

NO MONEY IN LAPSES. 

Twenty-five years ago the public, which had become 
weary of inflated estimates as to annual dividends in 
life insurance, was led to believe that there was a great 
deal of profit to the companies in lapses, which profit 
could be speculated in by the insured through the pur- 
chase of policies, the dividends on which were to be 
divided only among those who survived and who kept 
their policies in force. 

Some of the companies which sold these policies have 
given good returns. In fact, that has been the experi- 
ence with most of them, although they did not pay so 
well as was estimated. It is well known, however, that 
a very small part of this profit was derived from lapses, 
and that in fact the gain from lapses was altogether dis- 
appointing to the companies themselves. 

This was notwithstanding the fact that for a con- 
siderable period at least the books were not so kept as 
to make the increased cost of new business, caused by 
the harsh penalty for discontinuance, fall upon these 
policies. For some years, however, at least one of the 
great companies dealing in policies of this kind has kept 
its tontine accounts in such a manner as to charge each 
policy with its full share of the initial expenses, the 
policy not showing a surplus over the reserve until it 
has made good all its initial costs as well as its current 
costs. 



Policy Features. 237 

The fact is that no more mischievous proposition was 
ever promulgated than that a Hfe insurance company 
could, contrary to the usual conditions of business, 
make money by losing business. No amount of im- 
mediate gain can, on the whole, make it pay to lose its 
patrons if it intends to continue doing business. More- 
over, such is action and reaction in commercial affairs 
that the effort required to get new business always has 
been strictly proportioned to the experiences men have 
had with companies, both while they^ remained in them 
and when they got ready to retire from them. 

There is, perhaps, nothing that an agent can better 
afford to do than to urge upon his ''prospects'' that his 
company does not expect to reap a profit by treating 
them harshly if they are unable to continue, or if they 
do not desire to continue. Any estimate of increased 
profits to persistent members on account of such a 
course on the part of the company is sure to be mis- 
leading, and no agent should indulge in such a practice. 
This sort of thing should be abandoned to those fraud- 
ulent institutions which, although the old theory is ex- 
ploded, are now seeking to prey upon the few persons 
who are not aware of it. 

Every agent, whether working for ordinary or indus- 
trial insurance, should, therefore, everywhere inculcate 
the doctrine that there is no money in lapses. 



238 Things Agents Should Know, 



INCONTESTABILITY. 

Long ago, according to Actuary James, of England, 
there were British companies which offered poHcies that 
were incontestable. They charged an extra premium 
for them; notwithstanding which, their contracts were 
considered to be ill-considered and perilous. 

There are many who suppose that incontestable 
clauses came into use because of the multiplicity of re- 
strictions in life insurance. These restrictions were, in- 
deed, burdensome and annoying, as one may easily un- 
derstand if he will but read and try to comprehend the 
small print of a policy of thirty or forty years ago. 

But the restrictions and conditions were not the im- 
mediate cause of the introduction of incontestable 
clauses. It would have been possible to do away with 
these provisions by merely wiping them out, which pro- 
cess would not have required a promise that the com- 
pany would not contest payment. In fact, side by side 
with the introduction and progress of incontestable pro- 
visions, there has gone on a simplification and weeding 
out of restrictions. 

In America the incontestable clause was an experi- 
ment undertaken by a great company, the Equitable 
Life Assurance Society, which earned a distinguished 
reputation as an enterprising innovator in life insurance. 
This was but one of its experiments, but it caught the 



Policy Features. 239 

public fancy quite as much as any other of those adap- 
tations which made the company marvelously successful. 

If one will consider why to ofifer an incontestable pol- 
icy proved attractive to the public, he will find the rea- 
son for the clause. The reason is that the public took a 
sinister view of life insurance contracts, owing to the 
fact that they were in those days rather frequently con- 
tested. The contests were very largely by companies 
which were managed by unscrupulous men, and which 
have since passed out of existence; but they reflected 
upon all life insurance companies. 

The public did not understand all the grounds for 
contest. What they did understand was that each and 
every one of them desired to have a policy which would 
not leave his beneficiaries a lawsuit instead of a bank 
draft. 

It might have been better, though not so immediately 
effective, to remove from the policies all those little un- 
derstood clauses and provisions which made it possible 
to dispute in the courts the payment of claims. But the 
most fetching provision of all was to promise in the 
contract that after a certain number of premiums had 
been paid the company would not contest the death 
claim under any circumstances. 

Notwithstanding this provision, companies sometimes 
have contested claims where the most patent frauds 
have been attempted. They have done this on the 
ground of public policy, holding that it would be almost 



240 



Things Agents Should Know. 



a crime to permit the fraud to be successful. Such 
cases, however, have been rare, and to-day, thanks 
largely to the incontestable clauses, the reputation of 
life insurance companies is probably clearer than that of 
any other sort of institutions in the matter of litigating 
claims. 



Policy Features. 241 

THE SUICIDE CLAUSE. 

In the early history of Hfe insurance it was considered 
as plain a proposition that a death claim occasioned by 
suicide should not be paid as that in fire insurance a 
claim occasioned by incendiarism for the insurance 
should not be paid. The two things were deemed to 
stand upon the same basis, viz., that the insured or 
beneficiaries who claimed through him should not be 
permitted to profit by his own wrong. 

The important difference that it is not the insured 
who profits by the payment of a life insurance policy 
was not at first apprehended. It soon came to light, 
however, when policies were assigned to purchasers for 
value or to creditors. It was so manifest that men are 
not likely to commit suicide in order to mature the pol- 
icy in the hands of a stranger, that the companies felt 
compelled to abandon their position, so far as policies 
payable to such beneficiaries were concerned. 

For many years, therefore, the anomalous condition 
existed that suicide claims were paid when the bene- 
ficiaries were purchasers for value or creditors, but 
were not paid when the beneficiary was connected only 
by ties of blood. 

A distinction might here be made as to cases where 
it can be clearly proven that the purpose of the insured 
in committing suicide was to mature a life policy, or that 
the insurance was taken with a view to committing sui- 



242 Things Agents Should Know. 

side, both of which cases constitute a fraud and would 
free the company from paym^ent on that ground. This 
was recently decided by the Supreme Court of the 
United States in the now famous Runk case. It has 
always been good law, no doubt, but it has not usually 
been possible to prove the intent. 

The ground upon which the retention of a suicide 
clause has been defended is precisely this fact that, 
while in very many cases, no doubt, the suicide was 
with intent to defraud life insurance companies, it could 
not be so proven. It was contended that the company 
should protect itself by refusing to pay suicide claims 
at any time. 

Courts have always been unfavorable to these clauses, 
holding that where the companies had no proof of 
fraudulent intent or where from the circumstances of 
the case it could be not be fairly deduced, they should 
not dispute the claims. Juries were especially prone to 
this view, and many decisions have been given against 
companies directly in the face of such clauses. These 
decisions were largely based upon the proposition that 
the insured was not of sound mind when he committed 
suicide, and consequently was not responsible for the 
act. 

One great company, the New York Life Insurance 
Company, has never had a suicide clause in its policies, 
and has contested suicide claims only when it possessed 
evidence that the self-destruction was with fraudulent 



Policy Features, 243 

intent. Its mortality experience has been favorable; 
and one by one the other companies have abandoned 
the clause after the first, second or third years of their 
policies, retaining it only as a means of protecting them 
against applications for insurance with intent to com- 
mit suicide. 

It would be interesting to compare the experiences 
of all these companies during the first years of insurance 
with that of the New York Life and other companies 
which have no suicide clauses. But the material for 
such a comparison has never been published. The sui- 
cide clause, as now employed by the companies, is a 
thing of small moment, being applicable for a very short 
time, and practically never being enforced even during 
that short time, unless the company is able to prove 
that fraud was present, either in obtaining the policy, 
or in the motive of the suicide. 



244 Things Agents Should Know. 

GRACE IN THE OLDEN DAYS. 

In these modern days we are often disposed to think 
that almost all the liberal features which we find in life 
insurance policies are innovations and improvements 
which our fathers were compelled to do without. Thus, 
for instance, the grace clause that is now becoming so 
common is thought by many to be a comparatively 
new thing. 

To be sure one American company, the New York 
Life, has for many years had in all its policies a clause 
giving a grace of thirty days in payment of all premi- 
ums. But that example was not followed by most 
American companies until a very recent date. 

The fact is, however, that long before our American 
companies had begun business the practice of granting 
grace had become very common in Great Britain. 
Thus, in 1826, when Actuary Charles Babbage published 
his book ''Comparative View of the Various Institu- 
tions for the Assurance of Lives,'' he reported fourteen 
companies, several of which are still in existence, that 
allowed fifteen days' grace; one that allowed twenty 
days; one that allowed twenty-one days, and eight that 
allowed thirty days; there was also one allowing three 
months. 

Some of these companies, and especially those which 
allowed but fifteen days, charged no interest, but most 
of them collected a fine, which was usually one per cent. 



Policy Features. 245 

on the amount insured, or $10 per thousand. Some of 
them, also, required a warranty that the insured was 
still in good health before they consented to receive the 
renewal premium, thus materially reducing the value of 
the grace. But in each case the company was holden 
during the period of grace for the amount of the policy, 
less the forborne premium, if the insured died. 



246 Things Agents Should Know. 

PROMPTNESS IN PAYING DEATH CLAIMS, 

Nowadays in the United States the practice of paying 
death claims promptly is so thoroughly established that 
a person involuntarily lifts his eyebrows in surprise 
when he learns of a company taking advantage of the 
clause in its policies giving it sixty or ninety days within 
which to pay a death claim. 

It was, however, long the custom among American 
companies to require this^ and when the period was re- 
duced by some of them to thirty days there was a good 
deal of shaking of wise heads over the matter. It was 
considered, for instance, that the company ought to 
have time to investigate the case^ and that this could 
not be done in a day or even a month. 

Of course, on presenting such an argument it was not 
taken into account that the promise of immediate pay- 
ment is not a promise to pay until the right to claim 
under the policy is thoroughly established. Thus no 
company, with its policy containing such a clause, would 
be required to pay the claim if it suspected fraud until 
it had taken time to investigate. The only real differ- 
ence is that for the time elapsing from the presentation 
of proofs until the time the claim is paid the company 
would be expected to pay interest. 

The great disadvantage to the beneficiary, however, 
of being required to wait when there is no doubt what- 
ever concerning the claim was so manifest that even 



Policy Features. 247 

before the companies abandoned the clause providing 
for ninety days within which to pay they relaxed in 
many cases to such a degree that part of the claim be- 
came payable earlier, and in some cases became payable 
immediately. Such a practice in Great Britain was re- 
ported as early as 1826 by the eminent actuary, Charles 
Babbage. 



248 Things Agents Should Know, 

THE POWER OF ASSIGNMENT. 

Many questions which are now regarded as thor- 
oughly settled were, as late as the '70's, still open. For 
instance^ there exists the peculiar fact that a life in- 
surance policy which is not an endowment cannot, in 
the nature of things, be actually payable to the man 
himself. Still it early became customary to make poli- 
cies payable to the executors or administrators or es- 
tate of the insured. The question then arose whether 
such a policy was the property of the insured, assign- 
able by him; also the further question whether such an 
assignment, when made in good faith and for the con- 
sideration of love and affection to a wife or children, 
was good as against creditors when the insured after- 
ward became insolvent. 

All these questions came up for adjustment in a case 
which was decided in the courts of New^ York in 1873, 
concerning a policy on the life of Samuel Laird in the 
New England Mutual Life Insurance Company. Mr. 
Laird's policy w^as originally payable to his executors, 
and later was assigned by him by the interlineation ''for 
the benefit of my daughter, Ann M. Laird, and my wife, 
Julia Laird." Upon his death the company claimed 
that the policies were forfeited on account of the trans- 
fer, and^ he dying insolvent, his creditors claimed that 
the proceeds should be paid, not to the beneficiaries 
but to the administrator for the benefit of creditors. 



Policy Features, 249 

The court decided that the administrator was not 
entitled, for the benefit of creditors, to more than the 
premiums advanced, with interest; that the contract, 
while made with the insured, was one which, in no 
event, could be payable to him, and, therefore, was not 
his property nor a part of his estate, and that the poli- 
cies having been properly transferred, the assignees 
might recover and were proper parties to sue, and to 
the beneficiary the proceeds would enure, even if Mr. 
Laird were insolvent at the time of death. 

The lines laid down under this decision have been 
followed in most subsequent decisions throughout the 
United States. 



250 Things Agents Should Know. 

MODERN INNOVATIONS IN LIFE 
INSURANCE. 

Some years ago Richard Teece, actuary and manager 
of the Austrahan Mutual Provident Society, read before 
the Insurance Institute of New South Wales a paper 
entitled ^'Modern Innovations in Life Insurance/' in 
which he named many of the most remarkable changes 
which had been made in the terms of life insurance 
policies up to that time. -^ 

Incidentally he mentioned the following innovations 
in insurance which did not last: ''We cannot, with- 
out an incredulous smile, read of companies for insur- 
ance against housebreakers, highwaymen, lying; for in- 
surance for female chastity and the like; or of the 'Brit- 
ish Apollo' for providing marriage portions, and in 
which the first claims were those of two members who 
paid their 2s. subscriptions and then married each other. 
We should look with some doubt on the moral influence 
of an office in which each member paid 2s. 6d. for each 
infant baptized until he had one of his own, on the 
happening of which event he was to receive £200; yet 
such offices as these existed in the halcyon days of the 
'bubble' era." 

He then referred, more or less deprecatingly, to ton- 
tine and cooperative life insurance, the first of which he 
condemned as speculative and deceptive, and the second 



Policy Features, 251 

as speculative and dangerous. He made the following 
prediction, which has, as many know, been fulfilled in 
our day: 'The tontine has now been succeeded by the 
semi-tontine, and I predict that it will be further whit- 
tled down until we shall be unable to distinguish it from 
the ordinary or life endowment assurance policy. I de- 
sire to distinctly disown any intention to impute bad 
faith to those who indulged such sanguine hopes and 
made such easy estimates regarding the results of ton- 
tine policies; they took the conditions which had been 
found to exist in a business which was known, and 
applied to them to make a forecast regarding one 
which was unknown^ and they have not been the 
first prophets whose predictions have been unrealized. 
But while the tontine policy has failed to realize the 
expectations regarding it, while it has introduced 
what I believe to be an unhealthy spirit into the busi- 
ness of life assurance, there has been nothing dishonest 
in it; and disappointed policyholders will only have 
themselves to blame for their neglect to make them- 
selves thoroughly acquainted with the value of the 
article they have purchased.'' 

We have not reached yet the end of cooperative in- 
surance in the United States, although the crash of so- 
ciety after society and the efiforts at legislating them out 
of existence indicate that their day is passing. 

Mr. Teece did not mention many of the innovations, 
which appear to have been good and which have come 



252 Things Agents Should Know. 

to stay, like, for instance, non-forfeiture conditions, cash 
surrenders, grace in payment of premiums and loans. 

Moreover, he does not mention, because it was not 
in common use, the instalment plan of paying benefits, 
nor, of course, the continuous instalment plan, which is 
a very recent innovation. He also does not mention 
the simplification of clauses in policies and the making 
of policies incontestable after a limited period. 

Had he been writing at this day, he might have re- 
corded the practically complete abandonment of the 
tontine plan by one of the leading companies engaged 
in the business. The Northwestern, in putting out its 
new policy, no longer writes tontine policies, nor even 
semi-tontine; but merely leaves the insured at the end 
of two years, when his first dividend falls due, either to 
select a deferred dividend period or take his dividends 
annually. . , , , ^ 



Policy Features. 253 

THE LOAN-NOTE PLAN. 

The agents of this generation do not remember much 
about the loan-note plan which was exceedingly popular 
in the last generation. Its popularity did not prevent it 
from becoming exceedingly unpopular. The plan was to 
accept a note for a portion of the premium each year; and 
it was held out to the insured that the dividends would 
take care of the notes. For instance, a note was taken 
for 40 per cent, of the premium and the dividends were 
depended on to reduce the indebtedness year by yeai 
iintilit was wiped out. 

Instead, as a matter of fact, the dividends proved to 
be smaller than the notes currently given, so that, in 
the actual working out of the plan, the indebtedness 
grew larger and larger, which meant that the interest 
charge on the insured grew larger and larger, while the 
amount to be received by the beneficiary in case of the 
death of the insured was smaller and smaller, because 
of the accumulation of notes to be deducted. 

Some companies provided that the dividends should 
take care of the interest first, and the remainder be ap- 
plied to pay the note; but the common practice was to 
require the insured to pay the interest, and to apply the 
dividend on the debt. In some cases either application 
might be made. 

When John A. McCall, now president of the New 
York Life, was making a creditable reputation for him- 



254 Things Agents Should Know. 

self in the seventies by his examinations of impaired in- 
stitutions as deputy in the New York insurance depart- 
ment, he ran upon a pecuHar sort of fraud that was 
practised under these poHcies. He referred to it in his 
report on the condition of the Security Life Insurance 
Company of New York, dated January 15th, 1877, as 
follows: ^Tremium-note and loan policyholders have 
been duped for several years by the form of receipt 
given, when their premiums were paid, as to the amount 
of their indebtedness upon said notes and loans. To ex- 
plain: A, holding a note policy with liens against it to 
the extent of $100, the interest being payable in ad- 
vance, was notified to pay his cash premium, with an ad- 
ditional amount of $4.20 for interest on notes. This lat- 
ter sum would indicate, at 7 per cent, interest, $60 prin- 
cipal outstanding; and he concluded, in consequence, 
that $40 of the notes had been cancelled by profits. It 
is now shown that a small dividend was declared on 
note and loan policies and applied by the company in 
reduction of interest to deceive the policyholders as to 
the amount of note indebtedness, and to make, for the 
time being, a conviction in their minds that what had 
been promised as to 'dividends canceling notes' was be- 
ing realized.'' 

The trick could not have been played if it had not 
been that the insured were accustomed to having the 
dividend applied on the notes while they paid interest 
in cash, and that only the excess dividends over what 



Policy Features. 255 

served to take care of an entire note was ordinarily em- 
ployed to reduce the interest. The lower amount re- 
quired on policies under the operation of this scheme 
threw the insured off his guard. 

But the plan did not require such frauds to demon- 
strate its impropriety; it was bad enough without any 
such features. The downward trend of interest and 
the upward trend of expenses tended to render it 
im.possible for companies to pay as large dividends 
as in the past. Consequently the plan disappointed 
the insured more bitterly than any failure to earn the 
estimated surplus on an investment policy conceivably 
can disappoint. Perhaps nothing can be imagined 
that would serve to disgust a man with life insurance 
more thoroughly than to be confronted with increas- 
ing premiums and decreasing insurance at the same 
time. Either one is bad enough, but, combined, they* 
are enough to account for the unpopularity of life 
insurance in the later seventies, even though there had 
been no question of the soundness and solvency of the 
companies. Thus, an actuary whose company has had 
much experience with this business, said recently: ''No 
amount of explanation will ever satisfy the insured wdio 
opened a contract on the premium-note system early in 
life and reached advanced age.'' 



256 Things Agents Should Know. 

ARE PREMIUM NOTES SAFE? 

In asking the question "Are premium notes safe?'' no 
reference is intended to be made to the mere taking of 
notes now and then, when the amount is sufficiently 
secured by the value of the policy or other security. 
Reference is had merely to a form of life insurance 
which was popular both in this country and Great Brit- 
ain for a long time and was familiarly known as the 
"premium-note plan." Under it a note was taken for a 
certain part of each premium, varying from 30 per cent, 
to as high as 50 per cent, throughout the life of the 
policy, the same to be reduced by dividends. 

During the time that this system prevailed and was 
popular it was often questioned whether it was safe or 
not, meaning whether it was safe for the companies. As 
a matter of fact, many of the premium-note companies 
did fail, but their failure was hardly due to losses of 
funds on account of the premium-note system. On the 
contrary, the survival and continued success of many 
other companies which indulged in the plan give evi- 
dence that it was not necessarily dangerous to the com- 
panies. 

There is another side to this view of this question, 
viz., its safety to the insured. If there can be found 
within the entire territory of the United States a single 
person who has survived to old age and continued in 
force a premium-note policy who is not dissatisfied, that 



Policy Features, 257 

person deserves to be put in a dime museum as its star 
curiosity. 

The result of the system has been, as everybody 
knows, an augmenting accumulation of indebtedness 
against the poHcy, equivalent to diminishing the amount 
payable at death, accompanied by an increasing cost, 
owing to the interest. Neither increasing cost nor di- 
minishing insurance has been very popular; and both 
together ! 

It was seen long ago that this must be the case, and 
early in the '70's Gustavus W. Smith, ex-commissioner 
of Kentucky^ in his valuable work, Notes on Life Insur- 
aiice, put the matter deftly and adroitly as follows: ''A 
life insurance company can, with safety to itself, accept 
the notes of a policyholder in part payment of the 'net 
annual premium' and the amount of these 'notes' or 
'loans,' bearing net or table interest, may equal but must 
not exceed the deposit. The deposit increases from year 
to year, and the notes or loans may be increased to the 
same extent, but no more. The notes or loans must be 
deducted from the face of the policy at maturity; there- 
fore, the amount actually insured becomes less and less 
each year. The question is not: 'Can a life insurance 
company safely accept notes in part payment of the 
annual premiums?' but rather: 'Can a policyholder, for 
any great length of time, afford to accept the credit 
' proffered by the company?' " 



Mortality T 



ORTALITY 1 ABLES AND STATISTICS. 



A MORTALITY TABLE FROM THE ANCIENTS. 

The earliest mortality table known was made by the 
Praetorian Praefect, Ulpian, an eminent commentator on 
the Justinian code. The following is given by Mr. Hen- 
dricks, a famous British actuary, concerning the origin 
of the table : "About the time of the division of the Ro- 
man Empire (A. D. 364) the Falcidian law was in force, 
which prevented a testator from leaving more than 
three-fourths of his property to any others than consti- 
tuted heirs. The Roman lawyers, therefore, found it 
necessary to consider and frame a table by which the an- 
nuities could be valued, so as to meet the requirements 
of this law. It was then that Ulpian produced the table 
given below, and which, considering its general accu- 
racy, affords considerable room for conjecture as to how 
the materials for constructing the table were obtained. 
We know, and have already referred to the fact, that in 
the Roman Empire careful enumerations of the people 
living, from time to time, took place. But we have also 
seen that from the construction of mortality tables a 

258 



Mortality Tables and Statistics, 259 

careful record of the births and deaths, and also of the 
ages at death, is required; and we have no knowledge 
that a record of births was observed, although we have 
previously noticed that deaths, at least when above a 
certain age, were recorded/' 
The table is as follows : 

Expectation of Males and 
Females, Roman Life, 
Age, (Ulpian.) 

Birth to 20 30 years. 

20 "25 28 " 

25 "30 25 " 

30 "35 22 ** 

35 "40 20 " 

40 " 41 19 " 

41 " 42 18 " 

42 " 43 17 " 

43 " 44 16 " 

44 " 45 15 " 

45 " 46 14 " 

46 " 47 13 " 

47 "48 12 " 

48 " 49 II " 

49 "50.. 10 " 

50 " 55 9 " 



55 " 60 7 

60 and upwards 5 



Taking into account the fact that this table was made 
at the time when there was very little knowledge of the 
science of statistics, and alst) when statistics were 
limited, it is of remarkable correctness when compared 



26o 



Things Agents Should Know. 



with modern standards. Indeed, it may have been a 
just representation of the mortaHty of those days, for all 
we know. There was nothing like modern life insur- 
ance, and the only use made of the table was in comput- 
ing values of cash annuities settled upon persons by the 
deeds or the wills of others. 



Mortality Tables and Statistics. 26 1 

THE OLDEST MODERN MORTALITY TABLE. 

The oldest of all modern mortality tables was evolved 
from certain British statistics by John Graunt, Fellow 
of the Royal Society, in a book entitled ''Natural and 
Political Observations Upon the Bills of Mortality." 
This book appeared early in the 17th century, the third 
edition bearing date of 1665. 

Graunt did not attempt to graduate by single years 
of age. Decades are near enough for him. But let him 
tell his own story: 

Whereas y We have found that of 100 quick concep- 
tions about 36 of them die before they be six years old, 
and that perhaps but one surviveth 76; we having seven 
decades between six and 76, we sought six mean pro- 
portional numbers between 64, the remainder living at 
six years and the one which survives 76, and find that 
the numbers following are practically near enough the 
truth, for men do not die in exact proportions, nor in 
fractions, from whence arises this table following: 

Of an hundred there die within the first six years 36 

The next ten years or decade. 24 

The second decade 15 

The third decade ,. 9 

The fourth 6 

, The next i. 4 

The next 3 

The next 2 

The next I 



262 Things Agents Should Know, 

From whence it follows that of the said 100 conceived 
there remains alive: 

At 6 years* end .- 64 

At 16 years' end 40 

At 26 25 

At 36 16 

At 46 10 

At 56 6 

At 66 3 

At 76 I 

At 86 o 

It is noteworthy that the author was not content to 
deal only with persons who are born alive, his statistics 
extend to cover all lives from the date of conception 
forward. 



Mortality Tables and Statistics, 263 

FIRST MORTALITY TABLE USED. 

While there were two mortality tables at least known 
before that date, the Ulpian and the Breslau tables, the 
first table to be actually used in life insurance compu- 
tations was the ''London/' constructed by Thomas 
Simpson from mortality statistics of London for the use 
of the Equitable Society of London. It was put into 
use at the beginning of the company, about 1760. Of 
it Mr. Simpson says, in the preface to his volume, ''The 
Doctrine of Annuities and Reversion," published in 
1775: "For in the first place I have given a very exact 
table for estimating the probability of life, deduced 
from ten years of observations on the bills of mortality 
of the city of London, whereupon the succeeding calcu- 
lations are grounded.'' 

The manner in which the table was deduced is not 
described; but as it was from deaths only it was doubt- 
less accomplished in a manner similar to the construc- 
tion of the Breslau table. The mortality of London at 
that time was high, and the system of graduation tended 
to exaggerate the mortality at earlier ages. 

Mr. Simpson was contemporary with the famous 
actuary, De Moivre, who constructed a mortality table 
on a purely mathematical basis without any direct ref- 
erence to mortuary statistics. The discussions between 
the two men led to the founding of two schools of actu- 
aries, viz.^ those who held that mortality tables should 



264 Things Agents Should Know, 

be in strict accord with statistical facts and those who 
held that, on the contrary, a rule of mortality might be 

developed which would be more reliable than a table 
derived from statistics. 

The London table constructed by Mr. Simpson and 

adopted by the Equitable of London was as follows : 

Age. Living. Dying. Age. Living. Dying. 

1,280 410 25 426 8 

1 870 170 26 418 8 

2 700 65 27 410 8 

3...- 635 35 28 402 8 

4 600 20 29 394 9 

5 580 16 30 385 9 

6 564 13 31 37^ 9 

7 ....^ 551 10 Z2 z^7 9 

8 541 9 32 358 9 

9 532 8 34 349 9 

10 524 7 35 340 9 

11 517 7 Z^ 331 9 

12 510 6 Z7 322 9 

13 504 6 38 313 9 

14 498 6 39 304 .10 

15 492 6 40 294 10 

16 486 6 41 284 10 

17 480 6 42 274 10 

18 474 6 43 264 9 

19 468 6 44 255 9 

20 462 7 45 246 9 

21 455 7 46 237 9 

22 448 7 47 228 8 

23 441 7 48 220 8 

24 434 8 49 212 8 



Mortality Tables and Statistics. 265 

Age. Living. Dying. Age. Living. Dying, 

50 204 8 66 93 6 

51 196 8 67 87 6 

52 188 8 6S 81 6 

53 180 8 69 75 6 

54 172 7 70 69 5 

55 165 7 71 64 5 

56 158 7 72 59 5 

57 151 7 73 54 5 

58 144 7 74 49 4 

59 137 7 75 45 4 

60 130 7 76 41 3 

61 123 6 77 38 3 

62 117 6 78 35 3 

63 Ill 6 79 32 3 

64 105 6 80 29 

65 99 6 



266 Things Agents Should Know. 

HISTORY OF MORTALITY TABLES. 

The history of mortality tables is decidedly modern 
history. The first modern table was by John Graunt, 
constructed from mortality in London; it was first pub- 
lished about 1640, and was graduated only by decades. 

The first table graduated by years of age was con- 
structed by the philosopher, Halley, from the statistics 
of Breslau, Germany. It appeared in 1693. 

The Breslau table, as well as the Graunt table, was 
never used in insurance computations. The first table 
to be constructed for actual use in these computations 
was by rule, and not from any actual experience. It 
was the work of A. De Moivre, and bears date 1725. 
The author proceeded on the basis that the number of 
deaths at each age were uniform, the number of the 
living at each age decreasing, so that the percentage of 
deaths increased. That is, the numerator of the frac- 
tion was constant and the denominator decreased, thus 
increasing its value. 

The first mortality table deduced from statistics and 
used in insurance computations was compiled by 
Thomas Simpson, actuary of the Equitable of London, 
and published in 1752. 

From that time forward progress was made in both 
methods of graduation, the two schools contesting the 
field until our day, one insisting that natural graduation 
was alone useful, and the other that mechanical or arti- 



Mortality Tables and Statistics, 267 

ficial graduation could be modified so as to express the 
law of mortality with great accuracy. 

The first table to become standard was the North- 
ampton, published in 1780 by Dr. Richard Price. This 
was drawn from population statistics without mathe- 
matical graduation. Dr. Price was an uncompromis- 
ing foe of graduation by rule. 

The success of the Northampton table and the 
greater success of the Carlisle table, also drawn from 
population statistics, graduated by natural methods and 
published by Joshua Milne, actuary of the Sun of Lon- 
don, in 1815, seemed to close the door to the mathemat- 
ical rule advocates. 

This was followed by the first table from insured lives 
drawn from the experience of the Equitable of London 
and published in 1825. 

The same year the mathematical school put forth an 
epoch-making work by Benjamin Gompertz, showing a 
new and improved system of approximate graduation 
by formula. 

This was followed in 1832 by a study of the subject 
by T. R. Edmonds, who discovered and named the 
''force of mortality," and showed how that function 
might be employed to map out the curve. 

The system of graduation by natural methods had 
also been developed until the graphic system had arisen 
to smooth out its irregularities. This was apparent in 
the Carlislr^ table, and still more in the first combined 



268 Things Agents Should Knozv. 

experience table, which was the 17 Offices or Actuaries' 
table appearing in 1843. 

The next valuable tables to appear were drawn from 
extensive population statistics in England and pub- 
lished by the government statistician, Dr. Wm. Farr, iii 
the years from 1845 ^^ 1865, culminating in his great 
'Tables No. 3,'' male and female. 

Contemporaneously with these, in i860, appeared 
Makeham's formula in a communication to the Journal 
of the Institute of Actuaries, which formula has har- 
monized the two schools and made graduation by rule 
the handmaid of graduation by natural methods. 

The importance of this discovery was so far from be- 
ing immediately realized that in the graduation of the 
Institute of Actuaries' or 20 Offices' table, which ap- 
peared in 1869, a formula drawn from the principles of 
the graphic system was employed. 

When the Institute of Actuaries' Text-Book was 
publisjied in 1887, the H'^ table, which was the most 
important table in the Institute of Actuaries' tables, was 
presented in a new form, being graduated according to 
Makeham's formula. 

A similar regraduation was made of the French Ac- 
tuaries' tables, the old graduation being withheld from 
the public. These tables appeared in 1895. 

The validity of the Makeham formula as an expres- 
sion of the law of mortality i^ now generally recognized; 
its value lies in its applicability to smooth the irregu- 



Mortality Tables and Statistics. 269 

larities of statistics and its adaptability to the purpose 
of approximating the rest of a table, some part of it be- 
ing known. 

The principal tables in use in Great Britain are the 
H^^* and the Carlisle; the principal tables in use in 
America are the Actuaries' and the table misnamed 
"American Experience/' which is an adaptation of the 
Actuaries', by assigning a lower mortality at some ages 
and shortening the ultimate limit of life. 



270 Things Agents Should Know. 

EARLY AMERICAN MORTALITY EXPERI- 
ENCE. 

In the early Massachusetts reports the experience 
of the various Hfe insurance companies was collated, 
giving the years of life exposed at each age, the actual 
deaths, the expected deaths according to the table, and 
the percentages. 

These tables began to be published in 1862. The ex- 
perience was also divided into three classes, viz., on life 
policies which were five years old or more, on life 
policies which were less than four years old, and on 
endowment and term policies, which latter the commis- 
sioners grouped together. 

The actual deaths in the year covered by the report 
were 1,364, and the expected were 2,019. On policies 
more than four years old the expected deaths were 
1,325, and the actual 1,006. On policies four years old 
or less the expected deaths were 558, and the actual 
253. On term and endowment policies the expected 
deaths were 135, and the actual 105. 

The oldest policies had been in force for nineteen 
years. 

The following year the commissioners gave the mor- 
tality for 1862 and also for the four years previous 
combined. The figures for the latter were as follows: 
Expected deaths, 2,936; actual deaths, 2,068. An inter- 



Mortality Tables and Statistics. 271 

esting classification was made in this report shov/ing 
the deaths by groups of ages, viz., under twenty-five, 
expected deaths, 45; actual deaths, 43; from twenty-five 
to thirty-nine inclusive, expected deaths, 881; actual 
deaths, 641 ; from forty to fifty-five inclusive, expected 
deaths, 1,384; actual deaths, 956; over fifty-five, ex- 
pected deaths, 626; actual deaths, 429. 

Similar tables were published again the following year 
showing the results of the five years previous, which 
were: Expected deaths, 4,052; actual deaths, 2,941. 
And again in 1865, covering the six years previous, the 
total expected deaths being 5,585, and the actual deaths 

4,123. 

It will be observed that the mortality w^as about 
twenty-five per cent, lower than the expected. It was 
thought at the time that this was owing to the fact that 
the experience was on lives so recently selected; but 
experience since that time has shown that the average 
mortality among American companies is not very much, 
if any, higher than seventy-five per cent, of the ex- 
pected deaths, according to the Actuaries' table. 

Individual companies have had a considerable higher 
experience than this, and many companies have had 
higher experiences during individual years, but the 
average obtained by the Massachusetts commissioners 
was much nearer the truth than they at the time sus- 
pected. 



2^2 Things Agents Should Know. 

EARLY AMERICAN TABLES. 
The first American table of mortality dates back to 
1789, and is known as Wigglesworth's table of mortality. 
It was compiled by Professor Edward Wigglesworth, 
of Harvard University, from bills of mortality in certain 
parishes in Massachusetts, 62 in number. The whole 
number of deaths was 4,893. The following is the table 
in periods of five years, instead of one : 

Persons Decrements Expectation 
Age. Living. of Life. of Life. 

o 4,893 1,264 28.15 

5 2,951 58 40.87 

10 2,715 28 39.23 

15 2,579 42 36.16 

20 2,365 43 34.21 

25 2,154 40 32.32 

30 1,962 38 30.24 

ZS 1,772 35 28.22 

40 1,597 35 26.04 

45 1,423 27 23.92 

50. 1,288 27 21.16 

55 1,153 27 18.35 

60 1,018 27 15.43 

65 883 Z7 12.43 

70 698 Z7 10.06 

7S 511 Z7 7.83 

80 326 35 5.85 

85 155 21 4.57 

90 52 8 Z.73 

95 16 6 1.62 

99 I I 



Mortality Tables and Statistics, 273 

The Wigglesworth table was adopted by the Supreme 
Court of Massachusetts as a rule for estimating the 
value of life estates. According to the late C. C. Hine, 
editor of the Monitor, there is ''a most remarkable cor- 
respondence between this table of Professor Wiggles- 
worth and the results of the census returns as de- 
duced by Mr. Meech.'' 

Another early American table is known as the Penn- 
sylvania table, and dates back to 1814. It was em- 
ployed by the Pennsylvania Company for Assurances 
upon Lives, which was founded in 1812. It was drawn 
from reports of the Philadelphia Board of Health and 
the records of the Episcopal Church. Only the expec- 
tation of life is given, which is as follows: 

Board of Health Episcopal Church 
Age, Expectation, Expectation, 

I 25.96 30.91 

5 36.94 37.91 

10 34.59 37.12 

15 30.92 34.10 

20 27.04 30.60 

30 21.48 25.50 

40... 19.IS 21.44 

SO 16.32 17.32 

60 13.71 13.75 

70 9.83 9.37 

80 6.97 5.95 

90 4.73 

The earliest census table of mortality was based on 
the census of 1850, and was constructed by Joseph C. 



274 



Things Agents Should Know. 



G. Kennedy, Superintendent of the Census. He gave 
mortality tables for the States of Massachusetts and 
Maryland. The same data were afterwards worked 
over by E. B. Elliot, so far as the State of Massachusetts 
is concerned, with the following table as a result: 



Age. 



Living. Age. 



Living. 



10,000 

s 7,146 

10 6,873 

15 6,726 

20 6,437 

30 5,748 

40 5,078 



50 4.409 

60 3,597 

70 2,475 

80 1,059 

90 118 

100 2 



Mortality Tables and Statistics. 275 

THE MUTUAL LIFE AND THE AMERICAN 
EXPERIENCE TABLE. 

When the Mutual Life Insurance Company was or- 
ganized in 1842, Prof. Gill was selected for its actuary, 
and was asked to supply a suitable table of mortality. 
For this purpose he took the Equitable Experience, 
the Swedish table, and a number of other tables, and 
made a composite table which embodied their average 
experience; and the premiums were deduced from this 
table. It is said that this table was afterwards sub- 
mitted to various English actuaries and was approved 
by them. 

Later the company came to use for its own private 
computations as well as for its reports, the 17 Offices' 
or Actuaries' table; and Sheppard Homans, who was 
then its actuary, gave strong support to Elizur Wright 
in his efforts to cause this table to be generally ac- 
cepted, and also in his efforts to enforce net valuations 
among American companies. 

In 1859, Mr. Homans produced in a report of the 
Mutual Life Insurance Company a new table of mor- 
tality, which he called "An adjusted rate of mortality 
according to the general experience of the Mutual Life 
Insurance Company of New York, for 15 years ending 
February i, 1858.'' 

Nine years later, in 1868, Mr. Homans published a 



276 Things Agents Should Know, 

mortality table which was given the name ^'American 
Experience Table/' The table was at once adopted by 
the State of New York as its standard, with the con- 
dition that the Superintendent might use other stand- 
ards for companies from foreign countries and for "in- 
valid lives and for other and extra hazards." 

The table was afterwards adopted by a number of 
other States, although it did not succeed, as many had 
expected, in completely ousting the Actuaries' table. 



Mortality Tables and Statistics. 2yy 

THE FIRST MORTALITY TABLE FOR AN- 
NUITANTS. 

If we except the old Roman mortality table known 
as the Ulpian, which was constructed for the purpose 
of valuing annuities left to persons by will, and of valu- 
ing reversionary interests, the first table actually con- 
structed for the purpose of determining the value of 
annuities, and certainly the first constructed for the pur- 
pose of determining at what price annuities might be 
sold, is that by John de Witt, the Grand Pensionary of 
West Friesland. 

Strictly speaking, de Witt did not construct the table. 
What he did was to lay down certain fundamental 
propositions as follows: 'That out of a given number 
of lives the same number would die from age 3 on, every 
half-year of life for 100 half-years, or until age 53 was 
reached." Thus he considered that out of 128 starting 
at age 3, one would die every half-year, leaving twenty- 
eight living at age 53. 

Then for the succeeding ten years he would expect 
one to die every nine months, leaving 15.66 living at 
age 63. Then one every year for ten years more, leav- 
ing 5.66 at age 73. Then one every year and a half for 
seven years, leaving one alive at age 80, who himself 
dies during the ensuing six months. 



278 Things Agents Should Know. 



SELECT LIFE TABLES. 



I 



The mortality tables which are at the present time 
in common use as standards are made up from the ex- 
perience of life insurance companies, including the 
earlier years of insurance when the mortality is greatly 
modified by recent medical selection. 

This sort of a table in the minds of the unsophisti- 
cated would seem to be entitled to the name of ''select 
life table/' But, on the contrary, what is really meant 
by that name is a table which exhibits the effect of 
adverse selection, or the wearing off of selection, so 
that it is thought to represent the normal mortality in 
a company after the advantages of recent selection have 
passed away. 

The method by which these tables are constructed 
is by throwing out all lives which have been insured 
less than five years, for instance, and making the mor- 
tality tables from the experience on the remaining lives 
which have been insured for a longer period than five 
years. In this manner the first five years after insuring 
are omitted, and the mortality at each age for each of 
the first five years of insurance is separately computed. 

It is held by many of the most eminent actuaries, both 
in this country and abroad, that the true method of 
computing life insurance premiums is to take into ac- 
count what would be the mortality upon, say, i,ocx) 
freshly-selected lives at each age. That is to say, there 



Mortality Tables and Statistics, 279 

should be a special mortality experience for the first, 
second, third, fourth and fifth years of insurance; and 
after that time it may be expected that the life will 
present only the risk of the ordinary or normal mor- 
tality experience. 

Dr. Thomas Bond Sprague, one of the most eminent 
and learned of the British actuaries, has given especial 
attention to this subject of select life tables, and is re- 
sponsible for the construction of such a table from the 
data employed in the construction of the celebrated 
H^^^ tables. His work has attracted great attention 
throughout the world, and has been widely discussed 
and employed in many instances. 

The Canada Life Insurance Company, in publishing 
its experience gave mortality tables deduced therefrom 
in the ordinary form, and also select life tables, which 
are of the very highest interest as exhibiting the ordi- 
nary course of mortality in a well-conducted American 
company. 

The fact, however, that a select life table was more 
suitable was early discovered and appreciated. In fact, 
in the publication of the experience of the Equitable 
Society of London from its foundation in 1762 to 1829 
by Actuary Morgan, the mortality was so analyzed as 
to show the effect of selection, not merely after five 
years, but after much longer terms. Actuary Samuel 
Brown carried this still further by constructing the fol- 
lowing table, showing the mortality per cent, between 



28o 



Things Agents Should Know. 



quinquennial periods of age, out of loo persons existing 
at each period, and admitted respectively at intervals 
preceding, increasing by five years. 



Between the 
ages of 



30 and 35 

35 " 40 

40 *• 45 

45 '* 50 

50 " 55 •..' 

55 " 60 

60 '* 65 



>»* r'. 


tn 1; 


tn (U 


tfi V 


01 4; 


•ti 9 0^ 


S-^ 


a^ 


GA 


fl.ci 


V3 0^ 


O-M 


O-M 


O-M 


*■' 


a wS 


w 


tc 


w 


OJ 


+j v^ 


J-l ■*-» 


^- -y 


U-i-t 


Vh -M 


«H 1> y 


t) rt • 


o; cti . 


<u <a . 


V a . 


2^ 


•^-^a 


^^^ 






(LXhi 


1*1*- 


^ ^<«-i 


« (L'Vh 




N t^ 








i! a cc > 


« bfl 


» &£ 


cn bo 


S bc 


03 O+J^ 


C <B « 


a CO ca 


cC cd 


C c3 cd 


&i . 














0.77 


0.70 








1.05 


1. 12 


1.09 


.... 




1. 14 


1.39 


1.27 


1.08 




1.35 


1.72 


1.45 


1.22 


1.09 


1.89 


2.04 


1.75 


1.72 


1.79 


2.50 


2.94 


3.70 


2.00 


2.44 


3.33 


4.76 


4.35 


3.85 


3.85 



9} 0) 

§5 

^ -^ 
4; CO . 

;::! "^ o 

C^ i-( ^ 

a cd 03 
O 



3-57 



By reference to this table it may be seen that the 
mortality among persons between 60 and 65, for in- 
stance, was 3.57 if they only had been insured between 
ten and fifteen years; 3.85 if they had been insured from 
twenty to twenty-five years; 4.35 if they had been in- 
sured from twenty-five to thirty years, and 4.76 if they 
had been insured more than thirty years, while the 
average mortality in the company, including those who 
were insured for a term less than 10 years, or men of 
those ages, was only 3.33. 

A similitude between this experience and what is 
known as post-tontine mortality in the United States 
will easily be traced by the reader. 



Mortality Tables and Statistics. 281 

CONTEMPORARY OPINIONS OF THE ACTU- 
ARIES' TABLE. 

It has been frequently said that the Actuaries' Table 
never became standard in Great Britain. This is true, 
notwithstanding the fact that it was constructed by men 
who were among the most eminent actuaries of that 
time, and also notwithstanding the fact that credit was 
given them for the excellence of their work. The fail- 
ure of the Actuaries' Table to become standard was 
owing to several things. In the first place, there were 
two tables in use already, one of which, the Northamp- 
ton, having been longest in use, was clung to by the 
ultra conservative offices, and the other, the Carlisle, so 
nearly corresponded to the Actuaries' that few com- 
panies cared to discard it to use the Actuaries'. 

Another reason was that the Actuaries' was regarded, 
as the Thirty American Offices Table has been regarded 
in this country, as a ''junior table." That is to say, 
by far too many of the lives dealt with had been insured 
but short periods of time. 

The principal reason, however, for not following the 
table was because it was made from policies or amounts 
of insurance, and not from lives. This system did not 
, suit the exceedingly exact and particular actuaries of 
Great Britain. It was the best they could do, to be 
sure, and so they employed this plan of constructing 



282 Things Agents Should Know. 

the table, but they showed that they did not consider 
their work of the highest value because they did not 
insist upon its use. The construction of a table by 
policies instead of lives is a thing, however, which is 
mainly objectionable when a small amount of insurance 
is dealt with. The difference in results diminishes with 
the increase in the amount of data. 

Perhaps the most peculiar thing concerning the re- 
fusal of actuaries and companies to adopt the Actuaries' 
Table as a standard is that they were positive that dire 
calamities would flow from its use. The following ex- 
pression of opinion by Samuel Brown, a famous actuary 
of London, published in the Post MagamnCy in 1847, will 
illustrate what the state of sentiment was in Great 
Britain concerning this matter: 'The collection of facts 
which we have described is extremely interesting; and 
if it be looked upon as an installment of future informa- 
tion, or the publication as an example to be followed 
by other companies, whose longer experience will add 
to their practical value, the public will have cause to 
be grateful for the labor and skill thus gratuitously be- 
stowed for the advancement of their interests. Every 
good, however, may be abused till it becomes an evil. 
If the publication of these observations, manifestly im- 
perfect as they are, and as even fresh additions to them 
must continue for many years to come, and ill-adapted 
as they are to afford deductions of theories, by which 
an extensive public company ought to be regulated, is 



Mortality Tables and Statistics, 283 

used as the means of exciting the public to look for 
increasing profits at reduced rates, or to set up as a stand- 
ard rate of mortality for all the futurCy the experience of 
little more than twenty years, the mischief may exceed the 
benefit they are calculated to produce. The Committee of 
Actuaries themselves, men celebrated in their profession, 
whose judgment, skill and complete acquaintance with 
the subject in question entitle their opinion to the 
greatest credit, have, with the fear of this misapplication 
before their eyes, given a very judicious warning 
against the hasty adaptation of these facts to practical 
purposes; yet, in spite of this weighty advice, some com- 
panies have already advertised tables of premium, de- 
duced from the observation, with a margin which ap- 
pears to us scarcely sufficient to cover the fluctuations 
of the early mortality of a society, much less the in- 
crease, which we have shown, may be reasonably ex- 
pected in a few years.'^ 

Of course, it is now known that these fears were 
utterly groundless, but experience has proven, never- 
theless, that the table was quite as incorrect a measure 
of the mortality to be expected in a prudently con- 
ducted company as they had considered probable; only 
the inaccuracy was over instead of under. 



284 Things Agents Should Xnow, 

MALE AND FEMALE LIVES, INSURED AND 

UNINSURED. 

Nothing in mortality statistics is more thoroughly 
settled than that women on the whole live longer than 
men. The statistics of birth show that there are more 
males born than females, but long before middle life 
is reached the preponderance is reversed. There seems 
to be in childhood, and, in fact clear up to the oldest 
ages, less vitality among men than among women. At 
no age, according to the population statistics of various 
countries, with the sole exception of the child-bearing 
period, is the mortality greater among women than 
among men. 

So much as to population statistics. The same thing 
also appears in the experience of companies as to the 
longevity of annuitants. Women who are in receipt of 
annuities live much longer on the average than men; 
and this has been found to be the case in every country 
where annuities have been sold and the experience col- 
lated and analyzed. 

Singularly enough, precisely the contrary seems to be 
the case as to insured lives, viz., that among them the 
mortality is less among male lives than among female, 
and that men live longer than women. 

Perhaps nothing has ever been discovered which il- 
lustrates better than this the influence of the moral 



Mortality Tables and Statistics. 285 

hazard in life insurance. Very much the larger pro- 
portion of the men who insure have responsibilities 
upon them, so that by their deaths a larger financial 
loss is incurred for their dependents than the amount 
of the insurance upon their lives. In very many cases 
this has not been true of insurances upon the lives of 
women. Very often the insurance has been taken in 
favor of the husband, who has little or no financial in- 
terest in the life of the wife and who, consequently, from 
a financial standpoint, has much to gain and nothing 
to lose by her demise. The murders known to have 
been committed in order to obtain insurance are not 
very many, but the ratio of such murders where women 
were insured in proportion to the total number of wo- 
men insured is very much greater than the ratio where 
men were insured. 

Another element in the moral hazard in dealing with 
insurance upon the lives of women has been conceal- 
ment. Many of the inquiries made by life insurance 
examiners have been regarded by women as imperti- 
nent, and they have not hesitated to evade them or, if 
necessary, to answer them falsely. This is not owing to 
any deficiency in honesty on their part, but merely to a 
much greater delicacy. Men confronted by an embar- 
rassment similarly formidable to them would no doubt 
seek to evade it in far more cases than women. 

The American companies which have insured women 
have had widely different experiences. About one-half 



286 



Things Agents Should Know, 



of them report a favorable experience on the whole, and 
the remainder an unfavorable experience. Doubtless 
many of the difificulties can be overcome. In any event, 
it does not appear why it should make so much differ- 
ence to a life insurance company whether the experience 
is as good as on the lives of men or not, so long as it 
is not disastrous ; for, by putting women into a class by 
themselves, they are made to pay the cost of the insur- 
ance upon the lives of women, whatever it may be. 



Mortality Tables and Statistics. 287 

A MORTALITY TABLE BEYOND AGE 100. 

When one speaks of a mortality table beyond age 100, 
it must not be understood to mean merely a mortality 
table dealing with lives at other ages and containing 
some lives which survive age 100. On the contrary, 
what is meant is that it is a mortality table which deals 
only with lives that have already survived age 100. 
Such tables are presented in a work entitled A Compara- 
live Viezv of the Various Institutions for the Assurance of 
Lives y by Charles Babbage, published in 1826. 

According to Mr. Babbage, the table is formed from 
a collection of 1,751 persons who had reached the age 
of 100 years or upwards. Most of these persons were 
mentioned in the book. Human Longevity, published in 
1799, by James Easton. In constructing the table, Mr. 
Babbage assumed 150 as the extreme longevity, al- 
though he says, ''there were two or three authentic in- 
stances of persons of greater age.'' The following is a 
copy of his table: 



Age, 
100 
lOI 
102 

103 
104 

105 

106 



Number 
Alive, 

' 1,751 
. 1,587 
. 1,442 
. 1,280 
. 1,126 


Die in the 

Next Year, 

164 

145 
162 

154 
150 
140 

120 


Age, 

107 
108 
109 
no 
III 


. 976 
. 836 


112 


113 



Number 


Die in the 


Alive. 


Next Tear. 


, 71^ 
. 622 


94 


80 


. 542 
. 473 


69 


57 


. 416 
. 368 
. 328 


48 


40 
34 



288 



Things Agents Should Know. 



Number Die in the 

Age Alive Next Year 

114 294 31 

115 263 29 

116 234 25 

117 209 24 

118 185 22 

119 163 20 

120 143 17 

121 126 14 

122 112 13 

123 99 II 

124 88 9 

125 79 8 

126 71 8 

127 63 7 

128 56 6 

129 50 6 

130 44 . 5 

131 39 4 

132 35 4 



NuYTiber 

Age Alive 

133 31 

134 28 

135 25 

136 22 

137 19 

138 16 

139 14 

140 12 

141 10 

142 9 

143 8 

144 7 

145 6 

146 5 

147 4 

148 3 

149 2 

150 I 



Die in the 
Next Year 

3 
3 
3 
3 
3 

2 
2 
2 



Mortality Tables and Statistics. 289 

WHO LIVE LONGER, THE RICH OR POOR? 

It has been one of the functions of insurance and an- 
nuity statistics to explode many ancient and respectable 
fallacies. One of these fallacies was that the poor lived 
longer than the rich, which was attributed to the luxury 
of the rich. Many of the old adages were based upon 
this assumption. Frugality w^as believed to be the 
surest foundation for longevity, and enforced frugality 
was regarded as next door to voluntary frugality. 

As soon as it was possible to obtain vitality statistics 
of different classes in the community it became evident 
that there was a higher relative longevity with every 
step in advance in the matter of human comfort and 
affluence. Thus, contrary to public opinion on the sub- 
ject, it was found that mortality among the noble fam- 
ilies of Great Britain was materially lower than the mor- 
tality among other classes, and that, despite the ail- 
ments which were induced by luxury, the expectation of 
life of the average nobleman was greater than that of 
the average yeoman by many years. 

Alexander Glen Finlaison, actuary of the Commis- 
sioners on the Reduction of the National Debt of Great 
Britain, in his report on the mortality of government 
life annuitants, says: ''Good service in the cause of 
truth may also be done by scattering the ill-grounded 
assumption that an inferior longevity is the portion of 
the affluent; and a vulgar idea which, after being 



290 



Things Agents Should Know. 



adopted as a fact in the first place, is in the next im- 
mediately accounted for, as a matter of course, by the 
luxury of the rich, and their greater command of the 
roads to excess, will be advantageously exploded." 

The same thing has been repeatedly observed by 
others since then, in comparisons of mortality among 
different classes. For instance, even in our day, when 
means of sanitation are brought within the reach of 
almost the humblest, and wdien, under systems of fac 
tory inspection, the welfare of the workingman ii 
looked after as never before, it is found in the experi 
ence of industrial companies that their mortality among 
adults is nearly, if not quite, twice as high as is the 
mortality experienced by companies which do not do 
an industrial business. 

It is, perhaps, significant of the greater care which 
men will give to secure the safety pf those whom they 
love than they will to secure their own safety, that the 
disproportion between the mortality experiences on the 
lives of children is by no means so great. There is no 
way of instituting such a comparison, however, upon 
insured lives, since no companies, excepting the indus- 
trial, write insurance upon the lives of children; but 
a comparison betw^een the mortality upon insured lives 
and population statistics seems to show that the poorer 
classes give unusual attention to the care of young 
children. 

The old adage that actual poverty and enforced fru- 



Mortality Tables and Statistics. 291 

gality conduce to longevity has, within a generation or 
so, given way to modification, viz., that people in mod- 
erate circumstances are likely to live longer than either 
of the extremes. There may be something in that, and 
there may especially come to be something in it within 
another generation or so, when w^ealth becomes mainly 
hereditary and when, in consequence, it is more luxuri- 
ously employed. At present, most of the very rich are 
comparatively temperate, and they are, besides, able to 
look out for their health far more successfully than even 
the moderately well-to-do. 

Moreover, the moderately well-to-do, as a class, are 
by no means contented and dwelling serenely with peace 
of mind in the ideal condition which is contemplated 
when one speaks of them as having the best chances for 
long life. The strife and worry of our modern exist- 
ence, indeed, tells very severely upon persons with mod- 
erate incomes, who are divided between passionate 
craving for larger incomes and constant dread of a 
change of fortune for the worse. Probably the pressure 
is less and less severe as one ascends from the lower 
to the higher levels. 



Reserves, Etc, 



REINSURANCE RESERVES— UNEARNED PRE- 
MIUMS. 

The word reserve is frequently used in insurance 
without being accompanied by the word reinsurance. 
Usually but not always the reinsurance reserve is the 
thing that is meant. Of course, money might be re- 
served for other purposes, and if so, such a fund might 
properly be called a reserve. 

The thing which distinguishes this reserve from all 
others is the purpose for which the fund is reserved. 
This purpose is to secure, first, that if the company goes 
on, it will have resources sufficient to meet its obliga- 
tions, and, second, that if it retires, it will have sufficient 
to induce some other company to take over its obliga- 
tions. 

It IS not sufficient to count that future premiums will 
pay future losses. Presumably that would only be true 
if all the policies in existence were now expired, so that 
future premiums would only be required to pay for fu- 
ture insurances. Evidently, if any insurances are in 

292 



Reserves, Etc, 293 

force for which the premiums have already been paid, 
it is not to be expected that future premiums would pay 
the losses under those policies. 

The proposition is that there should remain enough 
out of past premiums to cover these obligations under 
insurances already in force, leaving future premiums 

[to take care of only the future insurances for which 
they will be paid. 

i Thus this reserve may be viewed from two aspects; 
first, by considering its purpose, and, second, by con- 

'sidering its source. 

From the point of view of its purpose, it is a reserve 
for reinsurance, or to cover liabilities under existing 

' contracts. 

From the point of view of its source it is an unearned 
premium reserve, that is, it is that part of the premium 

'which has not yet been earned by fulfilling contracts 

*of insurance. 

Where a policy of insurance as a level premium life 

^insurance, for instance, agrees to accept an unchanging 
premium to cover an increasing risk, it follows that this 
reserve must exist, not merely to cover the unexpired 
portions of years for which premiums#have been paid, 

■but also to help out future premiums which would other- 

'wise be inadequate to cover future obligations. This 

fact, however, does not change the nature of the re- 
serve which is still both a reinsurance reserve, that is, 
the amount which in addition to future premiums will 



294 



Things Agents Should Know. 



1 



be required to meet future obligations, and is also an 
unearned premium reserve, that is, the amount which 
should have been accumulated from past premiums after a 
meeting past obligations. '" 

The agent who has mastered these simple facts con- 
cerning reserves knows a great deal more about them 
and their true nature than does many a man who speaks 
glibly concerning actuarial formulas and problems. 
Moreover, he know^s something which he will be able 
to tell his customers and to make them understand. 



Reserves, Etc, 295 

ARE RESERVES INDIVIDUAL OR AGGRE- 
GATE? 

There has been for many years an issue, perhaps im- 
possible of sohition, between those who hold that re- 
serves in insurance belong to the individual policies 
and those who hold that the reserve is an aggregate 
amount. The points at issue are simple and worth 
knowing about. 

Those who hold that the reserve is an individual affair 
argue as follows: The purpose of the reserve is to meet 
or help to meet the policy's contributions to pay future 
losses. The source of the reserve is the past premium 
or premiums, for the reserve is what remains of the 
past premium or premiums after the policy's contribu- 
tion to meet past losses and expense has been paid. 
From the standpoint of reinsurance they also argue that 
the reserve is an amount required to reinsure this par- 
ticular policy, and that if this particular policy w^ere 
cancelled, the total amount required to reinsure all the 
business of a company would be lessened by just the 
amount of this reserve. 

On the other hand, those who contend that the re- 
serve is an aggregate amount say that as to its purpose 
it consists of merely that aggregate sum which would 
be necessary to reinsure all policies or which may be 
required to meet or help to meet future losses, and that 



296 Things Agents Should Know. 

as to its source it is that aggregate sum which remains 
of past premiums on all existing policies after past con- 
tributions to losses and expenses have been met. 

As to the statement that the cancellation of a policy 
diminishes the reserve by the amount represented by 
the unearned premium of that policy, they do not deny 
this, but they insist that it does not follow that this 
amount is the real reinsurance reserve of that policy. 
They illustrate this by reference to life insurance where 
it might happen that the individual insured was in a 
much worse plight than the average condition, so that 
a reserve to reinsure his policy alone would not be so 
small an amount as that part of the aggregate reserve 
contributed by his policy to the aggregate reinsurance 
premium required to be paid if all the policies were rein- 
sured. On the other hand, it would be a less amount 
when the life is better than the average. 

With this candid statement of the points at issue the 
readers must be content to decide the matter for them- 
selves. It will not be strange if many decide one way 
and many the other. 



Reserves, Etc. 297 

ORIGIN OF THE FOUR PER CENT. STANDARD. 

The following language from the first report of Elizur 
Wright, Insurance Commissioner of Massachusetts, 
will explain how the rate of four per cent, came to be 
adopted as the standard in state valuations, and also 
on what principle Mr. Wright considered that the rate 
of interest for this purpose should be determined: 

''The difference between the various rates of mor- 
tality adopted by different companies is probably of less 
practical importance than the difference between the 
rates of interest assumed as certain to be realized on 
the investment of money. A very large part of the 
immense sums promised to be paid in the distant future 
is to be produced by the accumulation of interest; and, 
the premium being fixed at the outset and unalterable, 
it will make a life or death difference with the company 
whether six per cent, interest is always to be received 
on investments or the rate is to fall occasionally or 
permanently to four or three per cent. If the interest 
is to be more, the premium may be less; and if it is to 
be less, the premium must be more. The only safety 
is to assume the rate of interest so low that the profits 
on investments may always exceed it, and to divide at 
short intervals the surplus that may result from the ex- 
cess. The English companies are generally afraid to 
assume a rate higher than three per cent., and some as- 
sume as low as two and one-half. The American com- 



298 Things Agents Should Knozv, 

panics generally deem it safe to assume four per cent., 
and that is the rate according to which we have made 
the valuation of which we are about to give the results." 
This is of interest to the agent, not merely because 
it gives him insight into the purpose of the commis- 
sioner in fixing upon this rate, and is thus valuable 
historical information for him, but also because it seems 
to set a standard for all time in this sense, viz., that 
while a rate of interest, which will be good for all time, 
cannot be named, a rate of interest may at any time be 
assumed w^hich is so much below the present experience 
that it may safely be counted upon for a long term of 
years. 



Reserves, Etc. 299 

SHEPPARD ROMANS ON GROSS VALUATION. 

When Eliziir Wright introduced net vakiation in the 
State of Massachusetts, there was a frightful howl, not 
so much on the part of the American companies, al- 
though there were a few of them also which undertook 
to hang out for gross valuation; but especially on the 
part of one English company which was doing a large 
part of the business in this country, viz., the Interna- 
tional. This company, after being declared insolvent 
by Commissioner Wright on the basis of the Actuaries' 
table and 4 per cent., was figured out solvent by two 
of the greatest actuaries in Great Britain, W. S. Wool- 
house and F. G. P. Neison; the elder Woolhouse de- 
nounced the net valuation formulas adopted by Com- 
missioner Wright, and stated that they, ''being based 
upon a hypothesis of fictitious premiums, having no 
actual relation whatever to the society's tables, or the 
premiums actually receivable, are necessarily fallacious, 
and may be regarded purely as a fabrication." 

The views of these eminent actuaries were supported 
by the opinion of Benjamin Pierce, Professor of Mathe- 
matics at Harvard. 

Both of these actuaries used the gross valuation sys- 
tem; i, e,, they did not take into account at all the fu- 
ture expenses of the company, but computed its assets 
and liabilities as if the whole of the future premiums 
were available to pay death losses. 



300 Things Agents Should Knozv. 

Fortunately, Commissioner Wright was not without 
support in this country. President Winston, of the 
Mtitual Life Insurance Company, addressed a com- 
munication to Sheppard Homans, actuary of the com- 
pany, submitting to him the opinion of Actuaries Wool- 
house and Neison, and of Professor Pierce, and asking 
for his opinion upon the subject. After analyzing the 
certificates furnished by these gentlemen to the Inter- 
national, and showing conclusively that they in their 
computations had not taken into account the future 
expenses, Mr. Homans gave the following opinion con- 
cerning the valuation by Wright: 'The Actuaries' Table 
occupies a satisfactory mean or central position among 
the most reliable tables of mortality — accords more 
nearly with the actual experience of all life companies, 
as now known, and is unquestionably, as an hypothesis, 
the best representation extant of the mortality prevail- 
ing among assured lives in England and in the United 
States." 

While the gross valuation system obtained lodg- 
ment in some places in this country, it never came into 
common use in America as it did in England; and what- 
ever follies the actuaries of this country were led to 
commit in its name, those follies did not include dividing 
the alleged surplus which was found by so absurd com- 
putations. 



Reserves y Etc. 301 

CHANGES OF STANDARDS. 

The first mortality table actually used by life insur- 
ance companies was one made from the Mortality Bills 
of London, by Thomas Simpson. This was used by the 
Equitable of London. 

It was displaced by the Northampton, which was ar- 
ranged for the same company by Dr. Price, and which 
showed a lower mortality than the London table. 

The net rates, according to the London table, were 
higher than according to the Northampton table. Con- 
sequently, upon the adoption of the latter, the Equitable 
introduced the idea of loading. The premiums had be- 
fore been net according to the London table; and a 
gross premium was now adopted, providing for the 
loading of 15 per cent, upon the Northampton table. 
This was afterward abandoned when competing com- 
panies began to charge lower rates. 

The Carlisle table next became the standard, but only 
after a hard fight. This table showed a very much 
lower mortality than according to the Northampton. 
The correctness of the plan upon which it was made was 
conceded by everybody; but it was not regarded '^con- 
servative" enough by some offices. 

A committee of the House of Commons, appointed 
to investigate the accuracy of the Northampton table, 
reported: 'The evidence appears to your committee to 
be strong and decisive in favor of the use of tables which 



302 Things Agents Should Know, 

give an expectation of life higher than the Northamp- 
ton. In truth, there is not even a prima facie case in 
its favor." 

Dr. Farr said: ''A false life table can be defended by 
the same arguments as a depreciated currency; and the 
substitution of a correct table causes the same kind of 
disturbance in the value of the shares of members as the 
recoinage of clipped money or a return from a depre- 
ciated paper to a metallic currency introduces into the 
value of commodities and securities. The Northamp- 
ton table has still silent adherents, but few open de- 
fenders; and some of the old officers have, greatly to 
their credit, since the error in that table has been placed 
beyond doubt, abandoned its use." 

F. G. P. Neison, the most famous actuary of his day, 
characterizes the refusal to adopt a standard more 
nearly embracing actual experience, as follows: 'It is 
a very curious, if not a mortifying, circumstance to dis- 
cover, at this advanced stage of our progress, that the 
gigantic moneyed interests of our greatest companies 
have long relied almost exclusively on a table which has 
been falsely constructed, and which in fact does not rep- 
resent the rate of mortality, even in the locality from 
which the data have been collected, nor, as will here- 
after appear, the rate of mortality in the country gen- 
erally, nor among the assured portion of the com- 
munity." 

Although an insured life table was introduced in the 



Reserves, Etc, 303 

17 Offices Table, and although population tables of the 
highest possible character were introduced in the series 
of English Life Tables i, 2 and 3, graduated by Dr. Farr, 
the British companies clung to the Carlisle Tables after 
having once adopted them until all actuarial differences 
were compromised in the Institute of Actuaries Tables 
known as H"^ or Healthy Male, tables. These will 
doubtless be displaced by the new Institute of Actuaries 
Tables, which are now approaching completion. 

In the United States, owing to its introduction by 
the Massachusetts Department, the 17 Offices Table, 
known also as the Combined Experience or Actuaries' 
Table, was adopted as a standard in many of the States. 
New York first adopted Farr's Table, No. 3. Later 
Sheppard Homans, actuary of the Mutual Life Insur- 
ance Company, constructed a table known as the Amer- 
ican Experience Table, which was made by modifying 
the Actuaries' Table below age 40 to conform more 
closely to the experience of the Mutual Life, and by 
changing the extreme age from 100 to 96. This table 
was adopted as a standard in several states. No change 
has since been made except from one of these standards 
to the other. The 30 American Offices Table, which 
was constructed under authority of the now defunct 
Chamber of Life Insurance, has never been accepted as 
a standard in the United States. The existing stand- 
ards represent a mortality considerably in excess of the 
experience of American companies, but on grounds of 



304 Things Agents Should Know. 

conservatism the state authorities have so far declined 
to change them or to seek new standards more nearly 
expressing American experience, although the theory 
of legal reserves is that they should test the fact of 
solvency. 



Actuarial Odds and Ends. 



THE BEGINNINGS OF ACTUARIAL SCIENCE. 

The first actuary was A. De Moivre, a resident of 
London, and author of a work entitled ^'Annuities on 
Lives," which appeared in 1725. 

The first actuary of a company was Thomas Simpson, 
actuary of the Equitable Society of London, and author 
of ''Select Exercises for Young Proficients in Mathe- 
matics," which appeared in 1752, and contained many 
actuarial problems. 

Among other early actuaries is Dr. Richard Price, 
author of ''Observations on Reversionary Payments,'' 
which was published in 1780, and in which the North- 
ampton table first appeared. 

Dr. Price computed this table and other tables for 
the use of the Equitable of London, and thus appears 
as the first consulting actuary for a company. 

The first comprehensive works to be devoted to prob- 
lems only, and not to the development of tables of mor- 
tality chiefly, were Francis Baily's "Doctrine of Life 
Annuities," and William Morgan's "Doctrine of An- 

305 



3o6 Things Ageftts Should Know. 

nuities and Assurances on Lives and Survivorships." 
Both of these appeared at about the beginning of this 
century. 

All these books gave only formulas which involved 
going back to the mortality table to compute each 
value. Commutation columns, rendering this unneces- 
sary, were invented by Griffith Davies, actuary of the 
Guardian Assurance Company of London, and pub- 
lished in his work entitled ''Observations on Life x\s- 
surances," in 1825. 

The first American consulting actuary was Elizur 
Wright, the author of the Massachusetts surrender laws. 
He introduced the 17 British Offices Table into general 
use in the United States under the name of the Actu- 
aries' Combined Experience Table. 



AcHtarial Odds and Ends, 307 

THE OFFICE AND INFLUENCE OF THE 

ACTUARY. 

It is, perhaps, not too much to say, that the greatest 
men who have occupied the office of actuary have not 
been those who sought to mystify the pubHc concern- 
ing the comparatively simple duties of an actuary and 
to magnify his office, but those who have sought to en- 
lighten the public as much as possible concerning its 
duties, and who have not exhibited the disposition to 
claim too much for the office or themselves. 

These two methods of behavior could hardly be bet- 
ter illustrated than by contrasting the following quota- 
tions. The first is from the preface to A Comparative 
View of the Various Institutions for the Assurance of 
Lives, by Charles Babbage, a most eminent scientist 
and philosopher of the first part of this century, who 
honored the actuarial profession by belonging to it: 
'There is one mistake which I have occasionally ob- 
served and which, as it is unjust, I should wish to re- 
move. Persons, unable of themselves to form an esti- 
mate of the merits of an office, sometimes judge that 
it must be good for the known skill and ability of the 
actuary who conducts it; and, on the other hand, if any 
inconsistency or impropriety in its proceeding is pointed 
out, the defect is almost invariably imputed to the same 
officer. Now, the degree of knowledge possessed by 
persons so situated at the different institutions is ex- 



3o8 Things Agents Should Know. 

ceedingly various, passing through all degrees, from the 
most superficial requirements, derived merely from the 
routine of an office, up to the most profound knowledge 
of the subject. Unfortunately, however, for the pub- 
lic, the power they possess is not always equal to the | 
weight which is due to their integrity and knowledge; 
and whatever may be the excellence of any regulation 
they propose or the advice they ofifer, it is frequently 
neutralized by passing through the ordeal of a board of 
directors, far too intent upon profit, and who, in their 
joint capacity, esteem it no degradation to sanction 
measures, which they would be very sorry to be con- 
sidered as acting upon in their characters as indi- 
viduals.'' 

The other quotation is from an actuary who shall be 
nameless, but who was distinguished in his day. It is 
quoted with unfavorable comment by Gustavus W. 
Smith in his excellent work Notes on Life Insurance, ''It 
is not to be expected that men who enjoy honor and 
emoluments from being considered the exclusive de- 
positaries of a scheme so useful to the world should so 
popularize and simplify it as to remove the bread from 
their own mouths and the glory from their own wigs." 



Actuarial Odds and Ends. 309 

INSURANCE IS A HEDGE. 

Now and then, even in this enUghtened age, persons 
are found who consider insurance to be gambhng. In 
fact, it is a ''hedge" or the very opposite of gambhng. 

An analogous case is found in a custom of prudent 
millers who have to carry good stocks of grain in order 
to have enough at all times to grind. But they are con- 
fronted with the possibility of grain falling in price be- 
fore their stocks are ground and marketed, carrying 
the price of flour down with it. This may wipe out 
their legitimate milling profit and make them lose 
m.oney. If they do not protect themselves, they are 
really speculating or gambling in grain. 

How can they protect themselves? 

Suppose a miller has a stock of loo^ooo bushels of 
wheat, bought at $1 a bushel. He may go into the 
market and sell wheat for future delivery, covering the 
milling period. Thus suppose it takes ten months to 
grind and dispose of the product. He proceeds to sell 
10,000 bushels of wheat, to be delivered in one month, 
10,000 to be delivered in two months, etc. Suppose he 
sold the wheat at $1 per bushel, to be delivered in one 
month. If it falls 10 cents a bushel, he will make $1,000 
on his sale of 10,000 bushels, because he will be able to 
fill his $1 engagement by buying wheat at 90 cents; 
but he will lose just as much on his month's output of 
flour on account of the fall, leaving him even. Suppose 



3IO Things Agents Should Know. 

wheat rises lo cents a bushel, he will now lose $i,ooo 
on his sale of wheat for he will have to pay $i.io a 
bushel and deliver at $i; but he will make just the same 
amount on his month's output of flour on account of 
the increase in price. 

What has he done? Gambled? Speculated? 

Not a bit of it. He has simply protected himself 
against risks which his owning that wheat incurred. 
He has refused to gamble, to take risks; he has insured 
his milling profits against fluctuations. 

It would be gambling for a man who did not own 
wheat to do this; he would have no risk to hedge 
against. He would be creating a risk for himself in the 
hope of gaining by it; all the miller is doing is to de- 
stroy his risk in the hope of escaping loss. 

Another illustration will make this even clearer. 
Suppose a business man found his clerk in the act of 
staking $ioo of his employer's money on an even 
chance, such as tossing up a penny, and suppose the em- 
ployer had no option but to stand by that bet. How 
would he go to work to save himself from gambling 
and from running this risk of loss? 

Simply bet on the other side; simply hedge. 

If he bets on the other side he will be nothing out 
either way. For if it goes one way, he gets back the 
$ioo the clerk bet and $ioo with it; and he loses the 
$ioo he bet himself, leaving him with his original $200. 
And if it goes the other way, he gets back the $100 he 



Actuarial Odds and Ends. 311 

himself bet, together with $icx) won; and he loses the 
$100 the clerk bet, leaving him again with his original 
$200 in hand. 

He has not gambled; he has merely neutralized the 
bet of his clerk. 

Nature is continually compelling us to run risks, just 
as the ownership of wheat does the miller, or the be- 
havior of the clerk did his employer. The man who 
does not hedge against them is the one who gambles. 
He gambles with his uninsured property, or he compels 
his dependents to gamble with his life. And all he 
stands to gain is the premiums he saves, while what he 
or they stand to lose is a much greater sum. 

In short, he is not merely gambling, but he is giving 
heavy odds, ruinous odds, if the bet goes against him. 

There is but one way to avoid such unconscionable 
gambling, far worse in its possibilies than the ordinary 
forms, and that is to hedge by carrying insurance. 



312 Things Agents Should Know. 

THE ORIGIN OF LIFE ANNUITIES. 

The first person in the world to give any special at- 
tention to the subject of furnishing annuities for a life- 
time, and especially of basing the calculations concern- 
ing them upon a scientific foundation, was John de 
Witt, the first citizen of his time, the father of the 
modern idea of free institutions and the Grand Pen- 
sionary of Friesland. In 1671 he drew from the regis- 
trations of deaths and births in different towns of Hol- 
land certain data enabling him roughly to compute the 
probability of men's survival. He prepared a report on 
the subject which was presented to the States-General. 

The disdnguished English actuary, Augustus Hen- 
drick, says of this that ''it is entitled to be considered 
as the first known production of methods which treated 
in a formal manner on the valuation of life annuities." 

He based his theory upon a number of propositions, 
some of which have passed into the science of mathe- 
matics as applied to probabilities, and especially as ap- 
plied tq^life probabilities. Thus, we find the theory that 
if a thing may happen in a certain number of ways^ and 
may not happen in a certain other number of ways, the 
chances that it may happen may be expressed by the 
fraction of which the number of ways it might happen is 
to be numerator, and the sum of the number of ways it 
might happen and the number of ways it might not 
happen, the denominator. He also presupposes that the 



Actuarial Odds and Ends, 313 

chance of dying is uniform throughout a given year of 
Hfe. This we know not to be correct, but it is, notwith- 
standing that, followed by modern actuaries. 

Another proposition is that the chance of dying is 
about the same in any year of hfe after maturity until 
about the fifty-third or fifty-fourth year; and after that 
time he makes certain estimates as to the rate of in- 
crement in the mortality. 



314 Things Agents Should Know. 

THE QUARRELS OF ACTUARIES. 

AVhenever two or more actuaries engage in a row, 
the younger persons in the business are disposed to 
think that one or the other of them is a mountebank, 
and that, of course, the profession is not Hkely to have 
such unseemly quarrels between reputable members. 
Quite the contrary, however, is true. It is entirely pos- 
sible that the contestants on both sides are honest and 
able. Quarrels among actuaries are so far from having 
been uncommon that a history of the profession could 
almost be written by recording the annals of such dis- 
putes. 

Thus, for instance, at the very beginning, when the 
science was becoming a science, in the middle of the 
eighteenth century, Simpson and De Moivre, the two 
great actuaries of that day, engaged in an active and 
persistent quarrel over the merits of their respective 
systems. De Moivre, who came into the field earlier 
than Simpson, had evolved a purely mathematical rule 
of mortality, which fitted somewhat loosely to the facts 
contained in the Breslau Table. Simpson, in making 
tables for the Equitable of London, derived his rates of 
mortality from an analysis of the deaths in London 
during ten years, and he refused to be guided in any way 
by the mathematical formulae prepared by De Moivre. 

Thereupon the two gentlemen became engaged in a 
most acrimonious dispute, so that their respective books 



Actuarial Odds and Ends, 315 

and papers are interlarded with bitter attacks and hot 
defenses. Simpson closed his defense of himself with 
the following: ''I appeal to all mankind whether, in his 
treatment of me, he has not discovered an air of selfish- 
ness, ill-nature and inveteracy unbecoming a gentle- 
man." i 

These men disappeared from the scene of action, and 
immediately came thereon Dr. Richard Price and Wil- 
liam Morgan on one side, and Francis Baily on the 
other. Dr. Price had been employed by the Equitable 
of London to get up tables for it to replace the London 
table, which was abandoned because of its gross inac- 
curacy. The result of Dr. Price's labors was the North- 
ampton Table. His nephew, William Morgan, was 
made actuary of the company. In publishing an edition 
of Dr. Price's book he gave brief formulae of his own, 
which Baily considered to be erroneous. Notwith- 
standing that, the formulae were reprinted in a later 
edition, and Baily refers to the subject in the following 
choice language: ''Mr. Morgan may, perhaps, flatter 
himself that no one will follow him through his investi- 
gations, and that he shall thereby escape the censure 
which he so justly deserves for this extraordinary con- 
duct." He also characterizes the formulae as follows: 
''All these absurd and inaccurate formulae are still re- 
tained, a disgrace to the editor and an insult, as well as 
an injury, to the public at large." 

Later came issues as to gross and net valuations, 



3i6 Things Agents Should Know. 

which for many years made the actuarial profession an 
arena of constant warfare, not always of logic alone, but 
frequently of expletives. The introduction of the Car- 
lisle Table divided the companies into warring camps 
again, the m.ore conservative preferring to retain the 
Northampton Table, although conceding that it was in- 
correct because it represented too high a mortality. It 
was, therefore, however, deemed ''safe.'' 

The Institute of Actuaries came into existence, but 
the feeling of antagonism was so great in regard to 
many members of the profession that for a long time 
a rival institute was kept up in London, and it is only 
within the last quarter of a century that the breach has 
been healed, and that the two associations of actuaries 
have am.algamated. 

In America there have been similar feuds, especially 
when the business began. The disagreement between 
Elizur Wright and other actuaries are matters of his- 
tory. In a way, they continue to the present day. At 
some of the recent meetings of the Actuarial Society 
there were discussions of questions which Elizur Wright 
considered that he had settled. 

There are side issues and quarrels continually, and 
much bitterness has grown out of them occasionally, 
but our American actuaries seem to have learned wis- 
dom, and usually they do not carry their personal quar- 
rels into their books or into newspapers. They have, 
however, engaged in warm discussions concerning cash 



i 



Actuarial Odds and Ends. 317 

values, concerning the gain and loss exhibit and con- 
cerning the proper assessment of expenses, but without 
losing their tempers. About the only breach, which 
appears to be without remedy for the present, is that be- 
tween actuaries of unquestioned standing and those 
who are connected with assessment companies and are 
considered, on that account, to be giving countenance 
to erroneous practices and heretical theories. Even 
now, as to the latter, the sentiment of antagonism is not 
usually personal. 



3i8 Things Agents Should Know. 

BREAK OF LIFE. 

The first actuary of the Mutual Life of New York, 
Professor Gill, in his report for 1851, employed the fol- 
lowing language: ''It is a well-known result of all Eu- 
ropean contributions to vital statistics that a marked 
change, the causes of which are but very imperfectly 
understood, takes place in the law of mortality at about 
the age of fifty-five — so much so, that Dr. Farr, in con- 
structing the English life table for the register-general, 
actually used different mathematical laws for the forma- 
tion of his table before and after this age; and this 
period has been called the 'break of life.' '' 

In this language he was making use of an idea which 
was prevalent in his day, viz., that there is some distinct 
time in the life of all men when the vital powers settle 
and begin to break down, and that from that time on 
the vital conditions become weaker. 

Later researches show that this period is reached at 
a much earlier date, probably at twenty or under. That 
is to say, the mortality which has been comparatively 
stationary for a number of years during adolescence 
begins slowly to increase. 

The idea among nearly all of those who first wrote 
upon the subject of mortality was that during what is 
known as the adult period, and up to a man's prime, the 
rate of mortality was not far from stable. Several of 
the earlier mortality tables, which were not constructed 



Actuarial Odds and Ends. 319 

from actual data, were graduated on such an assump- 
tion. This was true particularly of the mortality table 
of the Grand Pensioner De Wit, of West Friesland, who 
placed the brealc at fifty-three. 

Later mathematical assumptions of a somewhat sim- 
ilar character were introduced by the well-known Eng- 
lish actuary, T. R. Edmonds, in a modification of De 
Moivre's hypothesis, which was, it will be remembered, 
that out of a given group at the start the same number 
would die each year, thus giving an increasing rate of 
mortality by constantly diminishing the denominator. 
Edmonds assented to this idea, but modified it by cre- 
ating periods during which the number dying remains 
the same, but changes as one passed from one period 
into another. He thus also recognized the thing meant 
by the expression "break of life.'* 

As to most individuals, there is very little doubt that 
there comes some period of life either at early or ad- 
vanced age when there is a distinct break or change 
for the worse in the vitality. The few who escape this 
are those who are destined to old age, and whose lives 
flow along in the even course of the law of mortality. 
This curve does not exhibit any such break at any point. 
The break is due to disease or debility, and comes at 
different times to different individuals. 



320 Things Agents Should Know. 

LONGEVITY OF ACTUARIES. 

The actuary, being a student of longevity par excel- 
lence, might reasonably be expected to take particular 
care to live out his full expectancy at least. The fact 
is, however, that most of them have been more ac- 
quainted with the mathematics relating to longevity 
than with the course of life which tends to prolong 
one's existence; and such subjects are only now begin- 
ning to be given the consideration they deserve. 

In making comparisons of the ages attained by actu- 
aries with the average age attained by other men, it 
must be taken into account that men do not become 
actuaries at birth, but commonly not much earlier than 
at 30 years of age. Consequently, they should reason- 
ably be expected to live to somewhere between 65 and 
70 without having, on the average, taken more precau- 
tions about their health than other people do. A com- 
plete list of the more prominent actuaries who have 
died might conceivably be compiled, the number not 
having been very great. But the following are all that 
the writer has been able to collect up to this time. The 
first eight of these are taken from a compilation made 
by Cornelius Wallford, and published under the head of 
"Longevity of Actuaries" in his Insurance Cyclopedia: 

Griffith Davies 67 Benjamin Gompertz 85 

Professor De Morgan 65 Mr. Harris (of the Sun)... 46 

John Finlaison yy Mr. Arthur Morgan 69 



Actuarial Odds and Ends. 



321 



Mr. W. Morgan 54 

Dr. Richard Price 68 

De Moivre 87 

Deparcieux 65 

Babbage 80 



Whiting 55 

Homans 65 

Baily 70 

Dodson 50 

Dove 63 



In this country, William E. Starr, Actuary of the 
State Mutual, is still serving that company at age 88. 



322 Things Agents Should Know. 

WHAT IF ONE DON'T DIE BY AGE loo? 

Most of the mortality tables are constructed on the 
basis of age lOO being the ultimate age or as the ex- 
treme attainable age. That is to say, they assume that 
all the lives will be extinct before reaching age lOO. 

Originally what the companies miight assume in this 
regard was not know^n to the public, and when a whole 
life policy was issued, the same was not payable until 
death actually occurred, although the company had 
made provision to pay the claim, as one certain to come, 
by the beginning of the insurance year in which the in- 
sured became loo years old. 

Some mortality tables, as, for instance, the American 
Experience, which is in use in this country, have been 
shortened so as to make the extreme age 95, which 
means that they count upon paying a certain claim at 
the end of the 95th year of age if the insured has not 
died previously. 

In both these cases the premiums are so computed 
and the business so conducted that the money is on 
hand to pay these claims, and if they should not accrue, 
it could only be held until they did accrue. 

Under the old plan, when the public was not in the 
companies' confidence in these matters, they would go 
on charging premiums and withholding the payments 
until the insured actually died. It might even happen 
that they would lapse or forfeit the policy because of 



Actuarial Odds and Ends, 323 

non-payment in the days before the surrender values 
were a recognized feature of the business. 

Meanwhile, while this was going on, the company 
had accumulated the full face of the policy out of the 
insured's premiums in order to meet this claim consid- 
ered to be certain, and every premium thereafter paid 
was consequently pure profit, as was also the interest 
on the principal sum, already in hand and ready to be 
paid over. 

Not so very many cases have arisen where the in- 
sured has survived these ages; but cases do occasionally 
arise. In recent years, however, the facts being under- 
stood by many of the insured, companies have generally 
treated their policies as endowments due at the end of 
the limiting ages, if the insured have survived so long. 
This has been done in several cases in the United States 
and the money has been promptly paid over as an en- 
dowment to the insured while still living, although by 
the terms of the policy it was not payable until the in- 
sured died. , ,. „ 



324 Things Agents Should Know. 

POLICY AND PREMIUM. 

A policy is a contract of insurance. Its form is that 
of a promise to pay, based upon a cash consideration 
known as a premium. The promise to pay, however. Is 
not definitive, but it is contingent, namely, upon the 
happening of the event in respect of which insurance 
is entered into. 

Insurance is a bet in form with the peculiarity that 
the insurer is not merely one of the bettors, but is also 
stakeholder, and that in no case is he required to return 
the stakes deposited by the other bettor, viz., the pre- 
mium. An apparent departure from this is in life in- 
surance, where an amount may be returned in cases of 
surrender. But the departure is only apparent, for 
what is really returned is premium for insurance never 
actually furnished. The case is really analogous to fire 
or other insurance where there is paid a return premium 
on surrender of the policy. In all cases the company, 
as one of the bettors, retains the premium paid it for 
insurance already had, whether there have been losses 
or not. 

The peculiarity of this position is that the actual bet 
on the part of the company, judged by the ordinary 1 
rules of gambling, is the face of the policy less the pre- 
mium. For it is the custom in ordinary gambling that 
all the stakes are to go to the winner. Let us illustrate 
this. Suppose that two men were to gamble as to the 



Actuarial Odds and Ends, 325 

burning of a house. One of them bets $990 that it 
would not burn, the other betting $10 that it would. 
These men place their stakes in the hands of a third 
person. If the house burns, the total stakes, $1,000 in 
all, go to the man who bet $10 that it would burn. If 
the house does not burn, the total stakes, $1,000 in all, 
go to the man who bet it would not burn. In the 
former event, there is a profit of $990; in the latter of 
$10. 

This state of things is precisely analogous to the 
actual facts of a fire insurance, except that there is no 
third person as stakeholder. It follows, therefore, that 
the actual insurance is, as has been said, the face of the 
policy less the premium. 

Of course, there is an offset to these profits in indi- 
vidual risks, in the loss on other individual risks, but 
this did not appeal to the persons who first came in 
contact with insurance. They did not realize that it 
was based upon a law of average, so that even if this 
particular house did not burn, only a very small part of 
$10 might be profit. 

Out of the fact that these persons who first came into 
contact with insurance did so from an individual view- 
point, the names have grown, which are distinctive of 
insurance contracts in the common vernacular. These 
names are "premium" and "policy." 

The word "premium" in the original Latin means "a 
profit," and especially "a profit derived from booty." 



326 Things Agents Should Know, 

In other words, ''a profit when the whole thing is 
profit," because one is not supposed to have paid any- 
thing for what is stolen, and that is what in plain Eng- 
lish ''booty" means. 

The word "policy," according to the English actuary, 
James H. James, is derived from an old Latin word 
''polica," which originally meant "a promise/' This 
Vv^ord, according to the same author, still survives in 
Spain, where, however, it is held to mean "warrant on 
a treasury, common stock, or public funds." 

From these two words it might seem that our Eng- 
lish word had an entirely creditable origin. But the 
fact is that it came to us through the Italian, where the 
word "polizza" meant "a lottery ticket;" and the idea 
was, that an insurance policy was the same kind of 
promise to pay as a lottery ticket, viz., upon an uncer- 
tain and improbable contingency. 



Actuarial Odds and Ends. 327 

THE RELATION OF SICKNESS TO DEATH. 

A well-known English actuary, T. R. Edmonds, in 
1832 asserted that there was a relation between the 
duration of illness in a group and the deaths in a group 
which had a mathematical connection with each other. 
He also asserted that two years of illness to each death 
seemed to be the law of nature, from which there was 
little deviation, except in very unhealthy climates. 
Thus, in the English army about two and one-half years 
of illness; in the West Indies, about one and one-third; 
in the East Indies, two and one-third for native troops, 
and one and two-thirds for European troops. 

Mr. Edmonds's view that the number of weeks of ill- 
ness and the rate of mortality at a given age are so 
related that one may be made the function of the other 
is a view which has been shared by many others. Pos- 
sibly it may have some foundation. Apparently the 
improvements in the hygienic, sanitary and medical con- 
ditions of the civilized world have affected the death 
rate favorably to a greater degree than they have the 
rate of illness. In any event, it is the fact that no such 
relation, reducible to a mathematical formula, has as 
yet been discovered. 

There has been no very great amount of investigation 
of the duration of one's last illness; and whether the 
period is on the average two years, or less or more, is 
as yet undetermined. This much anyhow is certain; 



328 Things Agents Should Know. 

that commonly, if a man die of illness, he will be on the 
down grade for some months, if not years, before death 
occurs. It has frequently happened that, in conse- 
quence of this, men who are entirely dependent upon 
their own efforts for a livelihood have been unable to 
keep insurance in force upon their lives. This element 
of favorable selection to the companies has not gener- 
ally been taken into account in considering how the fact 
of insurance influences the mortality. 

Some European companies now issue policies in 
which there is an agreement that in event of one being 
ill when a premium falls due, the same shall be remitted. 

In Great Britain, one of the accident companies at 
least has issued a special policy, guaranteeing the pay- 
ment of life insurance premiums which may fall due 
when one is ill. In the United States, up to this time, 
features of this sort are not found except in the fra- 
ternities; yet the possibility of introducing them has 
recently been discussed by the managers of more than 
one company. 



Actuarial Odds and Ends, 329 

GENESIS OF LOADING. 

Young men who come into life insurance are like 
babes who are born into the world. They find an estab- 
lished order of things which, so far as they can see, 
must always have been so. Thus the young men of 
the present generation who have come into life insur- 
ance have found an established something called '^load- 
ing/' which they understand to be that portion of a life 
insurance premium which can be used for expenses. 

Many of them assume that life insurance premiums 
were originally constructed with the direct purpose of 
having this loading; that in fact it was part of the art 
of rate making; that there was added to the net pre- 
mium, which was scientifically computed to cover the 
mortality, a margin which was more or less scientifically 
computed to cover the expense. 

Nothing could be further from the truth. In the first 
place, the earliest premiums were not scientifically com- 
puted at all, but were evolved on the same principle 
that in the year 1898 still governs the making of tariffs 
on railroads, namxcly, ''Charge all that the traffic will 
bear." 

Moreover, the first rates that were scientifically com- 
puted did not make any provision for expense in the 
form of loading. When the mortality table from the 
experience of London was made by Simpson at about 
1750, the rates of the Equitable Society, which he or- 



330 Things Agents Should Know, 

ganized, were made to conform to computations from 
this table. 

These continued in use until. the construction of the 
Northampton table by Dr. Price, although the Equit- 
able Society by this time also had tables computed 
from its own experience. The Northampton table was 
adopted because it showed a high mortality, and was 
believed to certainly make ample provision for the com- 
pany's possible losses. Still in 1782, when these tables 
were adopted, a loading of 15 per cent, was added be- 
cause the new rates were lower than the old. This 
loading was dropped again in 1786, but the idea had 
found lodgment. This loading was arbitrary, and not 
specifically intended for expenses. 

With the lapse of years, and especially when the Car- 
lisle and other tables appeared, it became evident that 
rates computed from the Northampton were much too 
high. Net rates by other tables were computed and 
published, and the Carlisle became recognized as the 
more accurate standard for select, insured lives. 

About the same time attention began to be paid to 
the subject of a provision for expenses. Originally the 
expenses of life insurance companies had been almost 
nothing, and even at this period they were very small: 
but they were something. An argument on the part of 
the more prudent and conservative companies against 
lowering their premiums was that a margin or ''loading'' 
was needed for expenses and contingencies. They met 



I 



Actuarial Odds and Ends, 331 

the competition of companies which reduced their rates 
by offering bonuses which returned whatever of this 
margin was not actually required. 

Long after this time, however, survived the practice 
in Great Britain of what is known as gross valuations, 
that is, of estimating the resources and liabilities of a 
life insurance company on the basis that it will have 
no future expenses and that all future premiums will be 
available to pay future losses. 

Practically, the idea that the loading should be as 
sacredly considered to be required for its purposes as 
the net premium is for its purposes >vas really first gen- 
erally accepted in the United States, where Elizur 
Wright, in guiding the insurance legislation of Massa- 
chusetts, chose to consider the loading as a special part 
of the premium unavailable for anything but its own 
purposes. He therefore measured the resources of the 
companies on the basis that only net premiums would 
be receivable for the purpose of paying future mortuary 
losses. This practically assumed that the loading would 
be needed for other purposes. The same idea was 
championed in England by eminent actuaries. 

This assumption seemed harsh in Mr. Wright's day, 
when the companies did not use nearly all the loading 
for the expenses. It was, however, salutary, and ex- 
perience has proven that it would have been unsafe to 
assume that they would not require all the loading for 
that purpose. 



33^ Things Agents Should Know. 

COMMUTATION COLUMNS. 

The novice at life insurance who first peeps into an 
actuarial book is confronted with a formidable array 
of tables arranged in columns, and to which is given 
the name of commutation columns. Their meaning is 
not clear to him, of course; and, although he may learn 
to employ formulas which, by reference to the columns, 
will give rates of premiums, etc., he is still puzzled to 
know why he should be able to get from them these 
functions. 

In this series the task will not be undertaken of in- 
structing him in this seemingly mysterious, but really 
simple matter. It is enough to say that the calculation 
of all sorts of problems of life insurances and annuities 
is greatly facilitated by the use of these columns; for 
thereby one calculation is made to depend upon an- 
other, so that, having arrived at one value, one may 
derive others. 

The value of these columns may be illustrated by 
reference to annuities. Thus, for instance, suppose 
that one needed to compute the value of a life annuity 
at any given age, and he did not have columns with 
which to work. There would be nothing for him but 
to begin at the highest age according to the table, and 
work backwards. Thus if the table were the Actuaries', 
he would first find the value of an annuity issued at 
age 98. He w^ould find this by first discounting one 



Actuarial Odds and Ends, 333 

dollar due at the end of the year so as to get its value 
at the beginning of the year, and then multiplying that 
discounted value by the chance of living one- year. 
This would be the value of an annuity issued at age 98. 
He would then add one dollar to it and then discount 
the same so as to bring it to its value at the beginning 
of the year or at age 97, and this he would multiply by 
the chance of living from 97 to 98. By this means, he 
would get the value of an annuity issued at age 97, that 
is, of one dollar to be paid at age 98 if one survived, 
and of one dollar to be paid at age 99 if one survived. 
By repeating this process each year, he could finally 
arrive at the value of the annuity at the desired age, 
such as 40. 

This would be rather a long process, but fortunately 
it would not need to be repeated. All that would be 
necessary would be to compute the figures down to age 
10, whereupon one would not only have the value at 
age 10, but the value of an annuity at each age above 10 
to the end of the table. Each one of these values is 
really found to be -represented by a fraction, of which 
the commutation figures N and D, respectively, at that 
age are the numerator and denominator; and the frac- 
tion at any given age of which in like manner the M 
and D figures at that age are the numerator and de- 
nominator represents not the value of an annuity, but 
of a life insurance. 

These commutation columns were invented and 



334 Things Agents Should Know. 

brought into use by Griffith Davies, an eminent Eng- 
lish actuary Hving in the first half of the nineteenth cen- 
tury, who published the result of his investigations and 
conclusions in a book entitled Observations on Life In- 
surances in 1825. 



Actuarial Odds and Ends, 335 

SURVIVORSHIP ANNUITIES. 

The survivorship annuity poHcy never became popular 
in the United States. Indeed, annuities of any sort 
were not popular until a very recent date. The sur- 
vivorship annuity is really a life insurance policy which 
promises to pay an annuity after the insured's death 
during the lifetime of the beneficiary. Such a provision 
for the protection of a single beneficiary can scarcely 
be excelled. Its sole disadvantage is that it is not a 
provision for the protection of any other beneficiary 
that one might desire to substitute. Such an insurance 
would terminate at the death of the beneficiary, even 
though the insured were living, and, of course, if the 
beneficiary died within a year or two after the death of 
the insured, the payment of the annuity would stop. 

These were very serious disadvantages, which have 
been removed since by the invention of the continuous 
installment policy, which provides for an annuity for 
as long as twenty years and for the beneficiary's remain- 
ing lifetime, if surviving the insured by more than 
twenty years. 

Notwithstanding its inelasticity and, consequently, its 
inapplicability to the purpose of most men, the survivor- 
ship annuity policy was always a favorite with those who 
had made a study of the intricacies of life probabilities. 
Possibly its earliest practical endorsement, from a man 
of eminent reputation, was that of Sheppard Romans, 



336 



Things Agents Should Know, 



in the form of taking such a policy on his own life for 
a considerable amount. It appears that Mr. Homans, 
on leaving the service of the Mutual Life, after being its 
actuary for fifteen years, had a survivorship annuity 
policy on his life, and that he carried no other insurance 
with the company. 






Actuarial Odds and Ends. 337 

INSTALLMENT AND CONTINUOUS INSTALL- 
MENT POLICIES. 

Life insurance differs from other branches of insur- 
ance in the fact that the vakie covered cannot be prop- 
erly measured in a himp sum. The value of a life con- 
sists in those annual installments above the cost of its 
keep which it might be expected to earn during an aver- 
age lifetime. A lump sum can only be considered to 
represent these values as a commutation of them. 

Similarly in the object for which life insurance is 
taken, there is the distinction that ^ lump sum cannot 
replace the value lost, with anything like certainty. 
For instance, a man dies leaving an infant daughter. 
Had he lived, he would have provided for her beyond a 
peradventure, save only possible inability to do so. Hr 
leaves her a lump sum of money, which may be improp- 
erly invested by ignorant or dishonest executors; the 
consequence may be that the protection which he has 
attempted to afford comes to nothing, and his daughter 
is brought to want. 

It was on this account that installment policies were 
devised, which furnish the protection of an income for 
a stipulated number of years after the decease of the 
insured. These fulfill the requirements in large degree, 
but they are subject to at least one objection, viz., that 
it might happen that the installment period would close 



338 Things Agents Should Know. 

and the payments stop before the beneficiary had ceased 
to need the provision. Thus, suppose a man held a 
twenty-year installment policy payable to his wife and 
dies, leaving her at age sixty. It might easily happen 
that the wife should live beyond eighty, so that her in- 
come would cease, and this might be a very great hard- 
ship indeed. If he dies when she is younger, the likeli- 
hood of her surviving the installment period is, of 
course, greater. 

Notwithstanding this disadvantage, the installment 
policy has been received with general favor. Within 
comparatively few years practically all the companies 
have been brought to issue them, and agents have found 
that they can obtain a hearing often with such policies 
and such arguments v/hen the stock arguments for life 
insurance would not have been heard with patience. 

Defects of the installment policies are not of a nature 
impossible of cure. It is to the credit of the largest 
American company that from its actuarial department 
have come improvements upon the ordinary installment 
policy, which obviate all the objections previously urged 
against the old form. The continuous installment 
policy is the invention of Emory McClintock. Under 
the provisions of this amended policy a certain benefi- 
ciary may be named, during whose lifetime the company 
wall pay a fixed income, with the further provision that, 
in the event that this beneficiary dies before the twenty 
years' payments have been made, the payments will con- 



Actuarial Odds and Ends, 339 

tinue for the remainder of the full period of twenty years 
to a second beneficiary. 

As is usual, there is nothing strictly new about this 
combination. The promise to pay during the life of the 
beneficiary was the familiar survivorship annuity. Con- 
tracts of this sort had been offered almost without 
takers from practically the beginning of life insurance 
in the United States. The ingenuity of the actuary lay 
in the fact that he divined that the reason this con- 
tingent annuity policy did not find favor in the eyes of 
Americans was because there was too great a likeli- 
hood of loss on account of early death of the beneficiary. 
So he combined the survivorship annuity with the cer- 
tainty that a large number of payments would be made 
anyhow. By this means, through combining two 
things, both of which seemed defective, an almost per- 
fect contract was evolved. 

It has slowly made its way, until now many of the 
leading companies are issuing it, and it is sure that all 
others will be before long. Evidence of this is that in 
the list of requests made by field men of a certain great 
company to the officers of th^ company in the year 1898, 
the following was the chief demand: 'That the company 
be urged to issue at the earliest possible moment con- 
tinuous installment insurance." 

Everything that increases the efficiency of the pro- 
tection furnished through life insurance must be hailed 
i with acclaim by agents, both because it gives them a 
more exalted sense of their own mission, and also be- 
cause it makes it easier for them to earn commissions. 



340 Things Agents Should Knozv, 

PARTNERSHIP INSURANCE. 

So late as the sixties, according to no less an au- 
thority than Cornelius Walford, more than one-half of 
the life insurances in the regular companies of Great 
Britain were of a business character. That is to say, 
they were taken for business reasons of one sort and 
another, and not primarily for the purpose of protecting 
families. There were, and are, in Great Britain many 
business occasions for taking life insurance which have 
not hitherto existed, or at least are not recognized to 
have existed in the United States. Thus, for instance, 
there are livings, estates for life, remainders, and advow- 
sons and many other properties and incomes, all of 
which depend upon a life, or several lives. Moreover, 
the English seem to come more slowdy than the Ameri- 
cans to the view that there are good business reasons 
for taking life insurance on the part of every man, viz., 
that his life has a value, and that either already there is 
somebody besides himself interested in his life, or in the 
course of events there will be somebody interested in 
it. This thoroughly valid reason did not appeal with 
the same force to the Englishman of that day as it does 
to-day to Americans, for instance. 

Only in comparatively recent years has insurance for 
business purposes come to be at all frequent in the 
United States. It has all along existed, but it was dimly 
recognized. Occasionally some person was thought to 



I 



Actuarial Odds and Ends. 341 

be of such value to a business that under the impor- 
tunity of some clever agent, the firm placed a moderate 
amount of insurance upon his life on behalf of the firm 
itself; but this v^as comparatively a rare case. 

There was another sort of a case which was still rarer 
— the issue of a joint life policy, covering the lives of 
all members of the firm in a given amount, payable at 
once, viz., upon the death of the first to die. This sys- 
tem of joint life insurance was very popular in Great 
Britain, but was never popular in the United States. 
The premium in most cases approaches too closely to 
the sum total of the premiums for like amounts of in- 
surance upon the lives of all the members separately. 
There is a feeling, too, that insurance, if it be a good 
thing, should not cease upon the lives of the surviving 
members of the firm just because the life of one mem- 
ber has failed. The reasoning is that certainly these 
lives have not ceased to have value because the other 
life has failed, and since they have value, they ought to 
remain insured. It is no answer to this objection to 
say that they can take new policies; they cannot always 
do so, since to obtain them they must be in good health. 
Moreover, that w^ould be making a second provision, 
whereas the central idea of the blessing of insurance is 
to make the provision now. 

Out of these early systems and ideas has come at last 
the conception of taking insurance in an equal amount 
or for different amounts upon the lives of all the mem- 



342 



Things Agents Should Know, 



bers of the firm in favor of the firm itself, the insurance 
premiums to be paid by the firm out of profits of the 
business. 

It is conceded everywhere that Hfe insurance is a 
good thing for a family, and that not on sentimental 
grounds, but from a purely business standpoint, viz., the 
protection of the value in the life which really exists and 
which may be lost* It is perfectly plain that it is equally 
a good thing for a business house. The loss which falls 
upon a partnership because of the death of an active 
member is as genuinely a financial loss as that which 
falls upon the household. It is as proper and as pru- 
dent for the remaining partners to protect themselves 
by insurance as it is for the person himself to protect 
his family by carrying insurance. 

Outside of the direct and immediate loss to a business 
house because of the removal by death of an active 
partner, there is also an indirect loss, likewise serious, 
which Is involved in being compelled to pay out that 
partner's interest in the assets, either at once or within 
a short time. However good the assets of (the firm may 
be, it cannot fail to be embarrassed to be required to 
produce a large amount of cash upon short notice. 
Very often it has crippled businesses and sometimes k 
has completely ruined them, although they were pros- 
perous and their prospects were good before the dis- 
aster fell upon them. 

There is yet another reason why business houses 



Actuarial Odds and Ends, 343 

should take insurance in favor of the firm upon the Hves 
of the various partners, and that is because money so 
invested is not spent, but is merely laid aside. If a 
policy be carried on the investment plan, the money 
grows at some subsequent period to a large lump sum, 
accumulated from comparatively small payments. The 
policy, therefore, represents a growing asset in the funds 
of the partnership. In emergencies, it can also be 
realized upon or it may be borrowed upon, temporarily. 
Indeed, it may have a value as security for loans far 
exceeding the money put into it in cases where creditors 
are disposed to believe that the houses can pull through 
if nothing happens to the members/ but would certainly 
fail if one or more members should die. 

In view of these things and of the liberal patronage 
that life insurance has recently enjoyed from business 
houses, it will be surprising if this sort of insurance is 
not greatly promoted during the next five years. The 
field is fallow, good examples have been set, and the 
arguments are valid and convincing. The agents, no 
doubt, will not let the opportunity slip. 



344 Things Agents Should Know. 

USING ACTUARIAL KNOWLEDGE IN THE 

FIELD. 

The misuse of actuarial knowledge in the field is so 
common that it has become a saying among managers 
that to acquire such information spoils an agent. 

There is, of course, some justification for this view. 
Many an agent, after he has a smattering of actuarial 
information, feels impelled to shine before his ''pros- 
pects" by airing his accomplishments. He talks sta- 
tistics and actuarial formulas, instead of the advantages 
of what he has to sell. The result is that he fails to 
interest, and in the end fails also to sell. 

If to behave thus were the inevitable consequence of 
one's familiarizing himself with the rudiments of ac- 
tuarial science, then it would be true that such knowl- 
edge spoils a good agent. But is that consequence in- 
evitable? 

It may be conceded that such a consequence is very 
probable, if the purpose of the agent in studying these 
matters is to escape from his sphere and to become an 
actuary. Such an ambition may be laudable, though 
fromi a financial standpoint it will lead in nearly all 
cases to a lower instead of higher income than the agent 
might have commanded by persistent work as an agent. 
But the man who is rebelling at his occupation and is 
seeking to get out of it into another is almost certain 
to neglect it and to make a mess of his work; for he is 



Actuarial Odds and Ends. 345 

continually thinking of what he wishes to be, and is not 
planning how he may make a success of what he is 
now doing. 

The young man who is soliciting insurance for an 
immediate livelihood, and who is prosecuting actuarial 
studies with the intention of fitting himself for actuarial 
duties, should put a guard over his inclination so that 
his lips shall, when soliciting, be sealed to discussions 
which would be proper for an actuary but out of place 
i9r an agent. It is not for furnishing his customers an 
actuarial education but for taking their applications that 
he will be paid. 

Very many agents study actuarial science with no 
intent to become actuaries by profession, but only to 
round out their insurance education. As to these men, 
it should be said that if their studies lead them to worry 
with involved formulas and computations and to employ 
such methods in soliciting, then they are being mis- 
educated. That, of course, is not the sort of actuarial 
education they were seeking nor the sort of education 
they need. 

In the field it is a good thing for an agent to be able 
to talk intelligently about his business. It is also very 
much to his advantage if he is capable of making what 
seems confused to the "prospect" clear and reasonable. 
If his attainments enable him to tell a plain, straightfor- 
ward story, plausible and logical, he ought to be more 
successful in his work than before. But he must avoid 



346 Things Agents Should Know, 

leading his customers through the involved paths which 
he himself has had to tread. 

A good illustration of what to avoid is this: A. youngl 
man, who has learned something of the manner in^ 
which premiums are divided, proceeds to instruct his 
customer as to the division into "mortality," ''reserve' 
and ''expense'' elements. If he leaves his task half- 
performed, he will cause the insured to suppose that 
the losses are all paid from the "mortality" element 
and to w^onder what the "reserve" element is for, any- 
how. This may throw the "prospect" into the hands 
of some assessment agent. It has done so by the whole- 
sale. But if he particularizes and shows how these di- 
visions change every year^ then he will have set upon a 
campaign of education which is likely to take all sum- 
mer or at least to take more time than the "prospect' 
will give to it. 

A good illustration of the proper and effective use 
of sound actuarial information is as follows: The agent 
tells the "prospect" that the operation is very simple. 
The company merely takes his money, invests it and 
credits it with the average rate earned upon its invest- 
ments, deducts at the end of the year his share of the 
losses and expenses carefully ascertained, then adds 
in the new premium and goes ahead. He then explains, 
if the plan is for a deferred dividend, that this process 
of accumulation is continued for a certain number of 
years, or if it is annual dividend, that before the new 



Actuarial Odds and Ends, 347 

premium is received the surplus is ascertained by de- 
ducting from the whole fund the required reserve. If 
he finds further explanations necessary, which is ac- 
cording to common experience improbable, he may say 
that the total expenses of the company are compared 
with the total provision for expenses in its premiums; 
and that the charge for the actual mortality is made in 
the same way, the mortality expected being according 
to the Actuaries' table. A few words about the sources 
of surplus may well be added, but they should be few. 

It may be said that an agent who has never studied 
actuarial science could also say this. Very true, and it 
will be well if he will say this or soniething equally sim- 
ple and equally true. But he who knows the actual pro- 
cesses is more likely to say it effectively and to be able 
to offer simple explanations in addition if required. 

The success of tontine insurance was owing in no 
slight degree to the simplicity and scientific accuracy 
of the manner in which it w^as presented. In fact, that 
form of presentation is a model well worthy to be fol- 
lowed, so far as is possible when dealing with propo- 
sitions which are at bottom not so simple. Thus, for 
instance, the tontine proposition was: We will take the 
money which you and other such policyholders pay us 
and pool it; we will compound it at interest; we will pay 
death losses with it and expenses; and what remains at 
the end of a given period we will divide among the sur- 
vivors who have kept their insurance in force. Thi** 



348 



Things Agmts Should Know, 



will be a largely diminished number. Those who have 
lapsed out will have got nothing and the heirs of those 
who die will have received only the amount of the in- 
surance without any dividends. 

This was attractive, because it was thoroughly in- 
telligible. Moreover, it was correct and not misleading. 
If the estimates were misleading, that is another m.atter. 
The agent's description of what was to be done was 
clear and incisive; it simplified to the customer's mind 
what, as presented by agents who sold annual dividend 
plans, seems complex and unintelligible. The result 
was show^n in the comparative success of the agents. 

The agent who has learned something of life insur- 
ance processes should employ his knowledge, firsts to 
make all things clear to his ''prospects," and, second, to 
create in an unobtrusive way such confidence that he 
knows what he is about, that the ''prospects" will pre 
fer to deal w4th him. If he confines himself to this, he 
ought to find his actuarial acquirements decidedly ad 
vantageous instead of the contrary. 



Supervision 



STATE SUTERVISION IN THE UNITED 
STATES. 

The first commissioner of insurance was appointed in 
the State of New York in the year 1851. He was 
commissioned merely as the representative of the 
Comptroller, who had all such interests under his 
supervision. The purpose of his appointment was to 
make an examination of the New York Life Insurance 
Company. The gentleman was an amateur actuary at 
a time when there were few if any actuaries in active 
practice on this continent. He had come to the con- 
clusion, which was correct, by the way, that the com- 
pany was offering more than it could do, and especially 
was paying dividends beyond its earnings. 

He was not permitted to examine the company, and 
in fact he made no efifort to do so until the officer who 
had appointed him, had passed out of office. His suc- 
cessor in office called the commissioner of insurance to 
account rather sharply and the matter was afterwards 
made the subject of investigation by a legislative com- 

349 



350 Things Agents Should Know, 

mittee. The company reformed its practices and made 
some investigations of its own which resulted soon in 
its being on a sound basis. 

The next example of state supervision was in Mas- , 
sachusetts, where two commissioners were appointed in 
the years 1856 and two others in the year 1857. In the 
year 1858 it happened that Elizur Wright was selected 
as one of these commissioners, and from that time in- 
telligent, thoroughgoing supervision began in this 
country. 

Very soon afterward the State of New York created 
a separate Department of Insurance and entrusted to 
the superintendent of insurance the supervision of com- 
panies doing business m that state. The first superin- 
tendent in New York was Hon. William Barnes, 
scarcely second in reputation and attainments to Elizur 
Wright himself. 

In the State of Massachusetts, through the efforts of 
Commissioner Wright, a standard of solvency was 
adopted, being a net valuation according to the Ac- 
tuaries' Table and four per cent, interest. This standard 
was very seriously objected to by many companies on 
the ground that this table had not been adopted abroad 
as a standard and also that the rate of interest was 
absurdly low. 

The New York department fell in with this view and 
the first valuation in New York was made according 
to the table known as Farr's No. 3, H M. This table 



Supervision, 351 

was drawn from population statistics of Great Britain 
and enjoyed a high reputation. The rate of interest as- 
sumed was five per cent. 

Presently a table known as the American Experience 
Table was deduced, party from the data from which 
the Actuaries' Table was computed and partly from the 
experience of the Mutual Life Insurance Company of 
New York. It was the w^ork of Sheppard Homans, 
who was at that time the actuary of the company. The 
New York department promptly adopted this table as 
its standard and fixed the interest to be assumed at four 
and one-half per cent. 

The examples of these states, which w^ere then as 
now perhaps the most wealthy and important in the 
nation were followed by a number of other states, until 
at last nearly every state in the Union had some system 
of supervision. Most of them modeled their system 
after the State of Massachusetts and adopted the same 
standard of solvency. A few accepted the New York 
model and coincided with it as to standard. Commonly 
which of the two models was favored is easily recog- 
nized by merely noting whether the supervising officer 
is called commissioner or superintendent. 

The State of New York finally abandoned the Ameri- 
can Experience Table and four and one-half per cent, 
interest and adopted the Actuaries' Table and four per 
cent, interest, which is now employed by it in valuing 
the policies of all companies reporting to it. But many 



352 Things Agents Should Know. 

of the states which modeled their legislation after the 
laws of New York have failed to follow in this partic- 
ular, so that some of the states still employ the Ameri- 
can Experience Table; and it is expected that when a 
three and one-half per cent, or three per cent, standard 
is adopted, all or nearly all the states will use the 
American Experience Table. 



Supervision. 353 

NATIONAL SUPERVISION IN GREAT 
BRITAIN. 

The English people are so averse to state interference 
that Great Britain was about fifteen years behind the 
United States in establishing state supervision of in- 
surance. In fact, it was not brought about until the 
frightful abuses became so notorious that there was a 
popular outcry. These abuses consisted in companies 
being established principally for the purpose of furnish- 
ing their managers a livelihood, and without any regard 
either to the interests of the stockholders or of the in- 
sured. This was really the outgrowth of a reckless race 
for new insurance which led, in the language of Elizur 
Wright, to "the establishment of a permanent overpay- 
ment of the function of management, and the turning 
loose upon society of that unscrupulous parasitic indus- 
try which is content or even ambitious to live upon 
others without returning any equivalent benefit.'' 

Mr. Gladstone, afterw^ard prime minister of England, 
was chancellor of the exchequer when the agitation be- 
gan. It first took the form of an agitation for govern- 
ment annuities, and later also resulted in the establish- 
ing of state supervision in 1870. At that time many 
of the more reckless companies were still in the habit 
of making their reports on the gross-premium valuation 
basis, which practically enabled them to count as an im- 
mediate profit all the present value of the loading on 



354 Things Agents Should Kftow. 

the premiums as soon as the insurance was issued, with- 
out even taking into account the possibility of lapse. 
This practice was thus characterized by Mr. Gladstone: 
'This is a business that presents the direct converse of 
all ordinary business, which, if legitimate, begins with 
a considerable investment of capital, and the profits fol- 
low, perhaps at a considerable distance. But here, on 
the contrary^ you begin with receiving largely, and your 
liabilities are postponed to a distant date/' 

While custom and some knowledge on the part of the 
general public incited companies to render reports 
every five, seven or ten years, and to have a valuation 
by an actuary, even that was not actually required. In 
fact, as Mr. Gladstone said in the same address, a com- 
pany might run for thirty-seven years before its losses 
overtook its premiums; and meanwhile, nobody could 
know that it was not solvent. We now know that in 
practice a company which exhibits any enterprise what- 
ever, will run a much longer time before its annual 
expenditures will equal its annual income. In fact, it 
sometimes seems as if that day would never come, and 
as if expansion would go on indefinitely. It is safe 
enough that it should be so, now that companies are re- 
quired to put up ample reserves; but in those days with- 
out any arrangement for adequate reserves, the situa- 
tion was very different. 



Supervision. 355 

THE ENGLISH ACT OF 1870. 

State supervision^ which began in the United States 
as early as 1856, was not adopted in Great Britain until 
1870. The bill was urged upon Parliament by Mr. 
Gladstone, who was then chancellor of the exchequer, 
and who afterw^ard became prime minister. The desir- 
ability of some form of state supervision was manifest. 
As a result of gross valuation it had been very easy to 
organize new companies and to absorb in extravagant 
expenses, or in dividends to shareholders -who had often 
put up no money at all, not only all the current profits 
but also all the anticipated profits 'during the entire 
course of the insurance, including the present value of 
the money which would certainly be required in future 
to pay the expenses. 

The English act differs from American laws in the 
important particular that it did not stipulate what table 
of mortality should be employed. A company might 
take any table and any rate of interest. 

From this it might seem at first blush that the com- 
panies were left as free after the bill was passed as they 
were before, to hoodwink and deceive the public. The 
following inquiry, however, rendered that impracticable : 
'The proportion of the annual premium income (if 
any) reserved as a provision for future expenses and 
• profits. (If none, state how this provision is made.) 

The importance of this inquiry consisted in the fact 



356 Things Agents Should Know, 

that the company would be required to confess that it 
had made no provision for expenses, if that were the 
fact. Of course, no company which desired to continue 
business could well afford to make such a statement; 
and by this simple contrivance the robbery was checked. 

It was not many years before that the greatest names 
in the actuarial profession in Great Britain were em- 
ployed to bolster up the mathematical truth,, but com- 
mercial falsehood, of gross valuation. Thus, when 
Elizur Wright introduced net valuation in this coun- 
try, he was confronted with the opposition of the 
honored names of Woolhouse and the elder Neison. 

It was quite an advance from this position in the 
short space of ten years for the English government to 
require of companies an intelligent and reasonable re- 
port. The English system also has worked well, while 
allowing far greater liberty to companies than the 
American system. Its disadvantages are that a direct 
comparison between the companies is rendered impos-j 
sible when they do not report upon the same basis; but{ 
it must be conceded that the advantages of freedom 
probably outweigh these considerations. 



Supervision. 3.57 

ARGUMENTS FOR NATIONAL SUPERVISION 

HERE. 

The first prominent advocate for national supervision 
of insurance was Elizur Wright, who was also one of the 
first advocates of state supervision. He early saw that 
the business of companies should never be confined to 
a single state, and that they were commercial institu- 
tions which must necessarily as a rule transact business 
in all the states of the Union, or in many of them. He 
w^as, therefore, impressed at an early date that super- 
vision, in order to be effective, ought to be national. 
He foresaw with remarkable accuracy the annoyances 
and extravagance of state supervision when exercised 
by each state independently, and in his report for 1865 
he offered the following argument why supervision 
should be national: ^^Yet if the legislation of Massachu- 
setts were copied in every state, life insurance com- 
panies would either be confined to too narrow limits, or 
would be embarrassed with a vast amount of needless 
labor and expense. Inasmuch as insurance is a general 
interest and every insurance institution should be se- 
cured as much as possible against the adverse operation 
of local causes, it is difficult for us to perceive why the 
supervision of all insurance companies of every sort in- 
tended to operate beyond the limit of state lines, should 
not be a function of general government." 



358 Things Agents Should Knoiv. 

STARTING A COMPANY IN ENGLAND PRIOR 
TO GOVERNMENT SUPERVISION. 

Before there was government supervision in Great 
Britain, it was the easiest thing in the world to start a 
Hfe insurance company — not an assessment company, 
but a regular life insurance company^ w^hich complied 
or pretended to comply with actuarial requirements. 

Under the stock company act, it was not necessary 
that capital be paid in nor was it stipulated how it 
should be paid in. As companies did not need to pub- 
lish a financial statement, they were able to make a 
great show with very httle actual capital. Thus, for 
instance, a com.pany could be organized with one mil- 
lion pounds capital and could even give it out as all 
paid up, when, as a matter of fact, it was issued for no 
consideration whatever to the prom-Oters for their ser- 
vices in organizing the corporation. 

The gross-valuation system enabled such a company 
even to get out a balance sheet in which it would put 
the present value of future premiums as an asset and 
the net single premiums for its insurances as a liability 
and thereby would show an enormous surplus, which 
consisted entirely of anticipated future profits. 

An important part of the game was to get good 
names on the prospectus, something as in American 
assessmentism. This was generally done by actually 
buying the privilege of using the names or sometimes 



Supervision, 359 

by using assumed names. Thus, a member of the house 
of commons, in a debate on the subject of national su- 
pervision, told of such a case, and gave the following 
particulars: 'The persons who represented them were 
retired schoolmasters, with bald heads, powdered wigs 
and every artifice to inspire confidence. The rate of 
payment by the rules was 5s. per head per day. Fur- 
ther, to insure a good personal appearance, coats, waist- 
coats and trousers were supplied, and the directors 
were enjoined to wear expensive jewelry, such as dia- 
mond rings, which were also provided out of the funds, 
and for not wearing a ring the fine was 2s. 6d. Ludi- 
crous as it might appear, these fact? were proved over 
and over again, and hundreds, nay thousands, of poor 
persons were in this manner defrauded of their savings. 
The same thing might occur again to-morrow. In fact, 
if two persons of distinguished name were in want of 
funds, and did not object to do it, the easiest way to 
raise money was to start a society of this kind, with a 
capital of one million, all paid up.'' 

He also gave the following ludicrous description of 
the manner of organizing a company: 'The law pro- 
vided that the deed of settlement should be signed by 
persons to an amount equal to one-fourth of the capital 
and to the number of one-fourth of the shareholders. 
But this was easily managed. One man was induced 
to sign for £40,000 who did not possess 40,000 farthings, 
and whose only means of payment was the shilling 



360 Things Agents Should Know, 

given to him by the promoters, in addition to a pot of 
beer, for affixing his signature to the deed. A new 
office generally set out in their prospectus that there 
was a capital of £1,000,000, all paid up; that is, the 
directors would vote 10,000 in paid-up shares to the 
promoters, and 10,000 paid-up shares to each of their 
own body. If asked where was their paid-up capital, 
their answer was that it existed in those paid-up 
shares.'' 

By the new law all that was required of companies 
in the original provision for government supervision 
in Great Britain was that they make reports, leaving 
them free to adopt whatever table and rate of interest 
they choose. Mr. Gladstone told of the visit of the 
manager of a prominent company, opposing the pro- 
posed law, as follows: ''I inquired from him whether the 
society to which he belonged had any objection to the 
publication of their accounts. His reply was: 'Oh, dear 
no ! I am extremely anxious for their publication.' Sub- 
sequently, when sending the accounts, he said: 'These 
are to be for private use.' I replied I did not need 
them for private but for public use, and then Mr. Har- 
ben said: 'If all the others publish, I have no objection. 
But as all the others do not publish, I would rather not, 
inasmuch as I think the facts I have given you might 
be the subject of unfavorable comment, of course, ow- 
ing to defective knowledge.' " 

The close similarity of this experience to similar ex- 



Supervision, 361 

periences in the United States will be at once recog- 
nized. According to Mr. Gladstone, the last statement 
of that company, previous to his visit, showed that it 
valued the premiums on its policies as being £582,000, 
while its obligations under them were valued at only 
is 18,000, upon which statement he made the following 
comment: 

"That is a most serious state of things, because the 
policies on which the society has received a very large 
sum, and therefore incurred heavy liabilities, are repre- 
sented as being in themselves assets of greater value 
than the whole liabilities." 



AsSESSMENTISM. 



AN EARLY FORM OF ASSESSMENTISM. 

Recently there has been heralded abroad, as if it were 
a new thing, the offering of annuity benefits by assess- 
ment societies, instead of the payment of a lump sum at 
the death of the insured. These annuities so far are 
mainly reversionary in form, that is to say, they are 
what are known as survivorship annuities, payable to 
one person only upon the death of another person, and 
then only provided the beneficiary survives. No doubt 
if the system continues to be popular for any consider- 
able time, deferred annuities will also be offered, which 
wnll begin to be paid after a certain number of years. 

Perhaps no phase of assessmentism is so dangerous, 
or wall be so plausible as this. Under it the payment 
of benefits will be so deferred that the cost will much 
more slowly increase than it does when the benefits are 
payable in a lump sum. This will be merely putting off 
the burden w^hich must necessarily get heavier and 
heavier, the longer that lifting it is delayed, so that in 
the long run the ruin will be more complete. But if 
there is any interference in insurance on the part of the 
state, it really ought to protect people from this, as such 

362 



Assessmentism. 363 

experiments will no doubt be tried, and will certainly 
be disastrous. 

Far from being a new thing, before life insurance be- 
came popular annuities were sold. Among the very 
earliest forms of assessmentism is this plan of furnishing 
annuities. The fact is that the earliest works of the 
famous Dr. Price were called forth by his having criti- 
cally examined ''these schemes for providing annuities 
for widows and for persons in old age.'' 

In the introduction he characterizes the operations of 
these societies by the following apt illustration: 'Tt can- 
not be said with precision how long these societies may 
continue their payments to annuitants, after beginning 
them. A continued increase, and a great proportion of 
young members, may support them for a longer time 
that I can foresee. But the longer they are supported 
by such means, the more mischief they must occasion. 
So, a tradesman, who sells cheaper than he buys, may 
be kept up many years by increasing business and 
credit; but he will be all the while accumulating distress; 
and the longer he goes on, the more extensive ruin he 
will produce at last." 

The same plea of which we hear so much in our day 
was put forward in that day in defense of the system 
after its insecurity had been demonstrated. This plea 
was that these societies could not fail because their 
liabilities could be reduced according to the terms of 
the contract, or their income could be increased so as to 



364 Things Agents Should Know. 

cover any deficiency. Dr. Price paid his respects to this 
claim in the following manner: ''It has been said in 
defense of these societies, that the deficiencies in their 
plans cannot be of much consequence, because their 
rules oblige them to preserve a constant equality be- 
tween their income and expenses, by reducing the an- 
nuities as there shall be occasion. And from hence it is 
inferred that they can never be in any danger of bank- 
ruptcy. In answer to this it has appeared that the time 
when they wall begin to feel deficiencies is far distant; 
that it will be too late to remedy past errors without 
sinking the annuities so much as to render them in- 
considerable and trifling.'' 

This ought to be a lesson to modern assessment so- 
cieties which are relying upon a similar provision, that 
it is a remedy which is only valuable if it be promptly 
applied as soon as the fact that there is a deficiency is 
discovered, and while the deficiency is yet very small. 
Resort to this remedy did not save a single one of the 
earlier assessment societies, and will not be likely to 
save a single one of the modern societies unless they 
learn wisdom from the experience of the past. 



Assessmcntism. 365 

ASSESSMENT PROTOTYPES. 

It is pretty well known among the informed that all 
the experiments which our American assessment so- 
cieties and fraternities have been making in life insur- 
ance have already been made by British Friendly So- 
cieties, and have proved calamitous. In consequence 
of which it really seems too bad to court disaster by re- 
peating experiments which are certain to prove unsuc- 
cessful. 

But are they certain to prove unsuccessful? Are not 
the conditions different? 

One of the most unfortunate things is just this in- 
fidelity of men which leads them to think that a change 
of conditions may make an impossible scheme of in- 
surance or economics work. 

But while the informed of course know that the 
friendly society is the prototype of the modern Ameri- 
can assessment society or fraternity, perhaps not so 
many know that before the friendly societies, even 
earlier than the regular life insurance companies, these 
assessment experiments were made. But this is the 
case; and it is interesting in looking into these matters 
to see the same low, selfish considerations appear, which 
nowadays lead men to patronize systems that they know 
to be defective and certain some time to entrap many. 

Francis Baily, a London actuary who wrote a treatise 
on the science which appeared in 1823, says of societies 



366 Things Agents Should Know, 

which origmated in the latter half of the iSth century: 
''Soon after the establishment of the Equitable As- 
surance Company, a number of societies sprang up (all 
about the same time, viz., 1770), which assumed the 
false and alluring titles of institutions 'for the benefit of 
old age/ These institutions were for the most part 
gross impositions on the public, proceeding from igno- 
rance or knavery, and encouraged by credulity or folly. 
The promoters of them were principally persons in the 
more advanced stages of life, and who imagined the 
schemes would last their time; they were consequently 
little anxious about the durability of the plan, and only 
desirous of getting a numerous body of subscribers that 
their plunder might be greater. These base attempts 
to deceive and allure the ignorant and distressed (and 
which unfortunately succeeded but too well), first in- 
duced Dr. Price to publish his 'Observations on Rever- 
sionary Payments.' '' 

Dr. Price says in his own introduction to one of the 
latter editions of his work: ''On the first appearance, 
however, of this work, the rage for establishing new so- 
cieties immediately subsided; a partial reformation took 
place in some of those which had already been formed; 
and in a very short time the greater part of them, con- 
vinced of their mistakes, dissolved themselves. A few, 
indeed, persevered in an obstinate adherence to their 
original plans; but they have long since exhibited a mel- 
ancholy proof of their own folly and of the truth and 
justice of the admonitions which had been wasted on 
them/' . ' 



Assessmentism. 367 

THE AMICABLE SOCIETY. 

The first institution for the assurance of life that grew 
to any proportions was the Amicable Society for the 
Perpetual Assurance on Single Lives, which was estab- 
lished in 1705. According to Dr. Richard Price, 
writing in about the middle of the eighteenth century, it 
was ''the only one I am acquainted with which has stood 
any considerable trial from time and experience.'' 

The plan of this society was very nearly like our mod- 
ern assessment plan of an equal assessment at all ages. 
There was no definite amount guaranteed at death, but 
the whole annual income was divided among the bene- 
ficiaries of the members who had died. A regular pay- 
ment was required each year from each member, but 
the amount of the benefit depended upon the total paid 
in and the number of decedents. Later the society un- 
dertook to guarantee a minimum benefit of $750. The 
maximum age at entry was forty-five." 

Dr. Richard Price, in his ^'Observations on Rever- 
sionary Payments," gave much attention to this society 
which was then flourishing, and analyzed its plan care- 
fully and completely. He found that the consequences 
of this method of handling the business must inevitably 
be larger benefits to the beneficiaries of earlier dece- 
dents than they should have received, and very greatly 
diminished benefits to later decedents, with the result 
that, after the lapse of a considerable time, young per- 



368 Things Agents Should Know. 

sons would not join the society, and that it would be || 
on that account doomed. His forecast in this particu- 
lar proved to be correct. 

He earnestly recommended to the society the em- 
ployment of expert mathematicians. The following is 
his language in this matter: ''I would observe that it is 
of great importance to the safety of such a society that 
its affairs should be under the inspection of able mathe- 
maticians. Melancholy experience shows that none but 
mathematicians are qualified for forming and conduct- 
ing schemes of this kind.'' 



Assessmentism. 369 

SOME FEATURES OF THE AMICABLE 

SOCIETY. 

The Amicable Society for the Perpetual Assurance of 
Lives was organized on January 24th, 1705, and was 
chartered by Queen Anne in the following year. The 
membership was limited to 2,000 persons, each of whom 
had to pay to the society £6 4s., or about $30 per annum. 
During the first year, one-sixth of these contributions 
was to be divided among the heirs of those who died; 
the second year £4,000 was to be so divided; the third 
year i6,ooo; the fourth year i8,ooo, and thereafter iio,- 
000 per annum. If the membership was not full, the 
amount to be divided was to be reduced. Annuities 
were also sold. 

A feature in American insurance w^hich was recently 
introduced, and is by many believed to be new, viz., the 
right to change at will the nominee or beneficiary, was 
also inserted in the first policies of this company. 

When the society was organized there was no limit of 
age and no requirement that one should be in good 
health, as a condition to admission. In 1707 by-laws 
were adopted, placing the limit of age at from 12 to 45, 
and requiring that at the time of admission one must 
"appear to be in good health." 

The first year of the society, 875 persons were ad- 
mitted, and 29 died; the second year the membership 



370 Things Agents Should Know. 

was full and 96 died; the third year the membership was 
still full and 122 died; in the fourth year 87 died. 

The charter of this society was regarded by its man- 
agers as a monopoly, and they actively opposed the 
granting of any similar charters. This they did suc- 
cessfully more than once. It was that institution which 
helped to defeat the granting of a charter to the Equit- 
able in 1762. 

The first manager of the society was John Hartly, 
who was allowed $1,500 per annum as salary, and also 
certain other sums to pay clerks, employes and ex- 
penses. He appears to have had many points of sim- 
ilarity to Receiver Bartholemew of the Charter Oak 
Life of Hartford, who was so generous and honest that 
he came to be implicitly trusted, and who later lost more 
than a million dollars of the company's money in private 
speculations. Hartly started out to reimburse the so- 
ciety for an embezzlement of a clerk which he ''felt 
bound to make good;'' afterw^ards he, himself, made 
aw^ay with about four times as much as the clerk did. 

Dividends were introduced into the x\micable in 171 5. 
They were paid quarterly, and they reduced the pre- 
mium from £6 4s. to £4 4s. 

The company was not continuously successful, al- 
though it made a very fine start. In 1715 it became evi- 
dent that it was suffering because of the uncertainty as 
to what amount would be paid at death. Therefore, it 
w^as decided that the minimum amount should be $625. 



Asscssnuiifisiii. 371 

From this time forward the maximum amount was 
something over $1,300; but only the minimum amounf 
was realized for over four years in succession. 

While treating it very kindly, Dr. Richard Price in 
his Observations on Reversionary Payments, published in 
1773, criticised the plan of the society, and made it clear 
that it could not last, and also that it was not of the 
widest usefulness. The registrar of the society replied 
to this. 

In 1790 a modification of the charter was obtained, 
providing that the limit of the membership should be 
4,000 instead of 2,000, and also that only $25 out of the 
$30 paid by each, should be applied to pay death claims, 
the remainder being reserved. 

In 1807 a further modification was obtained extend- 
ing the number of members to 8.000, and providing for 
payments graduated by ages. The age limits were 
changed to 8 and 6y, The whole of the contributions of 
those admitted afterwards were put into the mortuary 
fund. Annual payments now ran from about $18 at age 
15 to about ^yy at age 65. In 1823 the limit of member- 
ship was increased to 16,000, and at about this time the 
company ceased dividing the mortuary fund for the 
year among the heirs of those who died. In 1836 the 
limit of the membership was increased to 32,000, and 
the minimum to be paid at death was increased to 
$1,000. 

In 1841 a table of mortality deduced from the so- 



37^ Things Agents Should Know, 

ciety's experience was published. By i860 it became 
evident that the society was disintegrating, and an ef- 
fort was made to amalgamate with the Economic. In 
September, 1863, its assets were $3,250,000, and its lia- 
bilities $3,022,500. The negotiations with the Eco- 
nomic failing, an effort was made to reinsure in the 
Northwich Union, and this was carried out. The com- 
pany continued as a separate company 161 years in all. 



Assessmcntism, 373 

NEW BLOOD. 

Long before assessment societies began to operate 
in the United States the argument of ''new blood" had 
to be met. The argument was as common in the early 
history of regular life insurance as it afterward was in 
assessment life insurance, that somehow a company had 
the right to count upon a large and increasing new busi- 
ness as an ofifset to any present deficiency in its funds. 
The idea is cognate to the old commercial proposition, 
which so many have tried to realize and failed, that a 
losing business can be transformed into a paying busi- 
ness if you only do enough of it, fofgetting that every 
additional sale at a loss augments the losses instead ot 
ofifsets them. 

The disasters which have follow^ed reliance upon "new 
blood'' in life insurance are well known to the reader. 
It ought to have been from the beginning perfectly clear 
that, even though conceivable that the injection of this 
''new blood" might revivify a dying company, it was 
hardly a fair thing for the "new blood" itself. 

In other words, to permit a sinking corporation to in- 
veigle others into joining its fortunes, concealing from 
them the true state of afifairs, is to permit a crime. And 
this is especially true in life insurance where they are 
embarking, not their own fortunes, but the protection 
of their families. A state which permits this cannot 
escape moral responsibility for the ruin which attends 



374 Things Agents Should Know, 

these new members who have been brought into the 
company after its dangerous condition is known. 

Elizur Wright, when Commissioner of Insurance for 
Massachusetts, was one of those who early saw the im- 
propriety of permitting such a thing, and in his report 
of 1863 he debates the question from the standpoint of 
moral and public policy in the following language : "The 
real question in the case is one of equity between old 
policyholders and newcomers. It is as if a firm with 
an impaired capital should seek to invigorate itself by 
taking in a new partner, bringing in the same capital as 
one of the original ones, while the latter did not make 
up their deficit. If a company does not keep its pre- 
mium reserve at least up to the standard it assumes as 
the basis of its premiums, it ought, in our opinion, to 
lose the right to seek new members. Indeed, w^e think 
it hardly fair to the citizens of Massachusetts that a 
company should seek to issue new policies here without 
showing a premium reserve behind the old policies up to 
the standard commonly recognized here. It is hardly 
possible for all our citizens who may be invited to insure 
in this company to be made aware of its exact position, 
so that they may exercise an intelligent discretion. 
There seems to be need of some enactment preventing 
any life insurance company, and especially one char- 
tered out of the state, from seeking new business to 
supply a deficit in the funds of the old.'' 



Historical. 



THE ORIGIN OF INSURANCE. 

As a business, insurance was first known in the sev- 
enteenth century, although at Bruges something of that 
nature was mentioned as far back as 13 lo. In the fif- 
teenth century there were systems of guaranteeing own- 
ers of vessels from loss. Maritime countries, therefore, 
enjoyed something like insurance. 'The first mention 
of anything of this nature, however, far ante-dated our 
era. There are two or three cases of guaranteeing 
against loss that are mentioned in Roman history. They 
are as follows, according to Pearson's Weekly: 

"During the second Punic war the contractors for de- 
livering corn into Spain stipulated that the government 
should indemnify them against loss by the enemy or 
tempest. Cicero, too, after his victory in Cilicia, seems 
to have obtained security against the loss of his booty 
during its transit to Rome." 

The creation of a large maritime commerce was the 
immediate cause of insurance. Its invention is attrib- 
uted to the Lombards, and is said to date back to the 
twelfth century, when wealthy persons underwrote ships 

375 



376 Things Agents Should Know, 

and their cargoes; that is, for a consideration of part 
of the profits of a cruise, they agreed to bear part of 
the losses. 

It was not, however, until the seventeenth century 
that this work was undertaken in a business-like man- 
ner by partnerships and companies. The first com- 
panies were organized in England about 1700. Marine 
insurance had been transacted by private individuals for 
some time previous to this. Fire and life insurance 
began to be practiced about the same time, viz., about 
1700. 



Historical. 377 

FOUNDATION OF THE FIRST REGULAR LIFE 
INSURANCE COMPANY. 

Previous to the organization of the Equitable Society 
for the Assurance of Life and Survivorship in London 
in 1765, there had been no Hfe insurance company or- 
ganized which we would nowadays consider to be reg- 
ular. The Amicable, which had been in existence for 
some time, could not be considered anything but a pro- 
totype of modern assessmentism. It is interesting, 
therefore, to consider a few of the facts and instances 
concerning the establishment of this first ''old-line'' com- 
pany. 

First, as to its founder. He seems to have been one 
of those odd geniuses who a century earlier would 
probably have been burned as a witch and necromancer 
and a century later would have been investigated as a 
spiritualistic medium. His name was Thomas Simpson. 
He had wandered about Great Britain, telling fortunes, 
promoting marriages, and even ''raising the devil'' by 
his magic. It is said that at the latter "he was so suc- 
cessful that he set his people mad and was obliged him- 
self to leave the village." 

He seems to have had a scientific bent of mind as 
well as striking originality, great imagination and 
greater confidence in the correctness of his views. In 
1740 he published a book entitled "Not Under the 
Laws of Chance," and 1742 another on "Doctrine of 



3/8 Things Agents Should Know. 

Annuities and Reversions." In 1752 he published an- 
other book entitled "Select Exercises/' on which he 
gave tables of annuities on single lives^ joint lives and 
survivorship. 

He obtained the cooperation of James Dodson, and 
together they computed tables of premiums for insur- 
ance from a table of mortality drawn from the mortality 
statistics of the city of London. 

Simpson by a number of lectures in London attracted 
great attention and interested a number of leading men, 
eighty-two in all, in his project. They appealed to the 
government for a special charter on the following 
ground: 'The great numbers of H. M.'s subjects whose 
subsistence principally depends on the salaries, stipends 
and other incomes payable to them during their natural 
lives or on the profits arising from their several trades, 
occupations, labor and industry, are very desirous of 
entering into a Society for assuring the lives of each 
other in order to extend, after their decease, the benefit 
of their present incomes to their families and relations, 
who may otherwise be reduced to extreme poverty and 
distress by the premature death of their several hus- 
bands, fathers and friends, which humane intention the 
petitioners humbly apprehend cannot be effectually car- 
ried into execution without H. M/s Royal authority to 
incorporate them for that purpose.'' Better statements 
of the benefits of life insurance it would be hard to find. 

Their petition was opposed by the Amicable and also 



Historical. 379 

by the London Assurance Company and the Royal Ex- 
change Assurance Company, the latter two being en- 
gaged in the insurance of lives on the imperfect plans 
in use before that time. The petition was rejected, 
partly because the new company was proposed to be 
mutual, and it was the opinion of the authorities that 
''this last objection is, in our opinion^ a fatal objection 
to the scheme, for though an undertaking plainly cal- 
culated for the benefit of the public may, in some in- 
stances, deserve encouragement, even where success is 
dubious, yet, in such cases, the projectors alone ought 
generally to abide the peril of the miscarriage/' The 
plan was also said to be perilous because of the adop- 
tion of fixed rates. The authorities said: 'The success 
of this scheme must depend upon the truth of certain 
calculations taken upon tables of life and death, whereby 
the chance of mortality is attempted to be reduced to a 
certain standard; this is a mere speculation, never yet 
tried in practice, and, consequently, subject, like all 
other experiments, to various chances in the execution. 
The tables upon which the calculations are built are the 
Bills of Mortality of London and the Breslau tables; 
and, admitting them to be strictly accurate (for which 
there is strong reason to believe to the contrary)^ they 
are compounded of diseased as well as healthy persons, 
of those who are embarked in dangerous as well as 
■other employments, without pointing out the propor- 
tions they bear to each other, and yet, as the petitioners 



38o 



Things Agents Should Know, 



propose to insure only such even of the healthy as are 
not employed in dangerous occupations, the register of 
life and death ought to be confined, if possible, for the 
sake of exactness, to such persons only as are the ob- 
jects of insurance, whereas the calculations offered em- 
brace the chances of life in general, the healthy as well 
as the unhealthy parts thereof, which, together with 
the nature of such persons' occupations, are unknown 
numbers." The commissioners do not seem to have 
considered that this but made the company safer. 

Another ground for refusing the petition was stated 
as follows: ''If the petitioners then are so sure of suc- 
cess, there is an easy method of making the experi- 
ment by entering into a voluntary partnership, of which 
there are several instances in this business of insuring; 
and if, upon such a trials these calculations are found 
to stand the test of practical experiment, the petitioners 
will then apply with a much better grace for a charter 
than they can at present, whilst the scheme is built only 
upon speculative calculations.'' 

The promoters adopted this suggestion and actually 
did start under a deed of settlement which caused the 
organization to be an unlimited liability copartnership. 
It will be observed that this contention, which seems 
so modern to Americans, that there should be a right 
of assessment retained by mutual companies, appeared 
at this early day. ' 

Actuary Hendricks is quoted by Cornelius Walford 



Historical, 381 

in his Insurance Guide and Hand-Book, from which vol- 
ume the foregoing facts have been drawn, as saying: 
'*No plan of life insurance in its proper form of develop- 
ment as an assured provision of a fixed minimum 
amount of money payable at death, whenever that may 
occur — the risk thus extending from the date of the 
insurance being effected up to the expiration of the 
whole term of life — had been contemplated by a com- 
pany or society, or had been considered by any legisla- 
ture in Europe prior to the year 1760, when discussions 
ensued in England, preliminary to the formation of the 
Equitable Society in 1762." 



382 Things Agents Should Know. 

THE OLDEST LIFE INSURANCE COMPANIES 

The three oldest old-Hne companies in the world arc 
the London Assurance Corporation and the Royal Ex- 
change Assurance Company, both chartered in 1721, 
and the Equitable Society for the Assurance of Lives 
and Survivorship, organized in 1761. The two former 
were and are stock companies, doing a general insur- 
ance business as well as life insurance. The last-named 
company is a mutual company, devoted solely to the 
business of life insurance. 

For many years the business of the Royal Exchange 
and London Assurance in life insurance was confined to 
what is now knowoi as term insurance, or taking a risk 
for a short time, the premium being fixed on a *'hit or 
miss" basis, usually without any special attention to 
age, but with particular attention to any special hazard 
that w^as contemplated. 

The organization of the Equitable marked the insti- 
tution of correct methods in life insurance. From the 
beginning it offered policies for the whole period of life 
at level premiums. 

The commission to whom the application of the or- 
ganizers of the Equitable for a charter was referred 
recommended that a charter be not granted, basing 
their adverse report particularly upon the fact that an 
attempt was to be made to furnish permanent insurance 
at a level rate of premium. The following is part of 



Historical. 383 

the language of their report: '*The success of this 
scheme must depend upon the truth of certain calcula- 
tions taken upon tables of life and death, whereby the 
chance of mortality is attempted to be reduced to a cer- 
tain standard; this is a mere speculation, never yet tried 
in practice, and, consequently, subject like all other ex- 
periments, to various chances in the question." Fortu- 
nately, this experiment has turned out well. 



3^4 Things Agents Should Know. 

HAS ANY REGULAR COMPANY LET ALL IT! 
BUSINESS RUN OFF? 

No regular company has ever yet permitted all it: 
business to run ofif, for the reason that when the busi- 
ness gets small, companies commonly reinsure, having 
ample funds for that purpose, and thus retire fron 
business without permitting the business to run out 
There is a notable case, however, in the United State* 
itself, of a company which certainly could run out in th( 
manner mentioned. Moreover, it is all the more re- 
markable since this very company was considered to b( 
practically insolvent nearly twenty years ago. The 
company referred to is the National Life Insurance 
Company of the U. S. A., with nominal headquarter; 
in Washington and actual headquarters in Chicago 
The rates charged by this company were so low as t( 
be considered by many as insufficient. It had beer 
made the catch basin for all the bad business of a numbei 
of insolvent companies through reinsurances; and i1 
was barely able to qualify as having the requisite re 
serve on the 4J per cent. American Experience stand- 
ard, with its capital of $1,000,000 practically entirely 
dissipated. 

Since then it has done no new business, but its report 
to the Illinois Department for 1897 shows assets o 
$i^95o>oSo; while all the policies in force at their face 
value amounted only to $1,754,765. It follows, there- 



Historical, 385 

fore, that this corporation could easily pay off these 
policies in full without demanding any further premi- 
ums, and still have nearly $200,000. Its actual re- 
serve liability on these policies is $913,432. The re- 
mainder of the amounts insured under the policies is 
considered to be covered by premiums still to be re- 
ceived upon them and the interest which will be fur- 
nished upon the funds up to the time the deaths oc- 
curred. The mortality of this company for the year 
1897, although it has done no new business for about 
twenty years, was safely within the expected losses, ac- 
cording to the Actuaries' table. 



386 Things Agents Should Know, 

BEFORE THE DAYS OF MEDICAL EXAM-- 

INERS. 

In the beginning there was no selection of risks by 
means of medical examinations. The directors of the 
company passed upon each application themselves. 
The statements of the applicant, his personal appear- 
ance, his age, his manner of living and things of this 
sort determined the question of his acceptance or re- 
jection. The existence of some slight ailment or even 
of more or less serious ailments, if they were of a 
chronic and not frequently fatal character, did not pre- 
vent his acceptance. Of course to discern minor ail- 
ments or obscure evidences of fatal disorders was 
plainly impossible. 

The first use made of physicians was by requiring the 
insured to get a reference from their own medical at- 
tendants. This began to be done first concerning per-s 
sons who were at the time of application under their 
treatment or who had been recently, or possibly w^ho had 
been some time before, if for a serious matter. For a 
long while no other medical selection was required. 

It must be remembered also that in those early days 
dhere was practically no soliciting. Persons presented 
themselves for life insurance. Nowadays medical di- 
rectors regard with extraordinary suspicion every case 
of a person coming to the office and voluntarily applying 
for insurance. Doubtless there was quite as much rea- 



Historical. 387 

s6n for suspicion in those early days. With compara- 
tively rare exceptions, men do not turn their thoughts 
to this subject unless they are appealed to either by the 
argument of some person or by the fact of having some- 
thing happen in their own families or among their im- 
mediate friends to warn them that life in the body is 
not perpetual. As the operations of companies began 
to spread over larger territory and especially as some of 
the business came to be done through the medium of 
solicitors either openly or secretly, the practice of re- 
quiring every applicant to appear personally before the 
directors began to be disused. Still in 1826 Charles 
Babbage wrote on the subject: *'It is required by all the 

'companies that the party on whose life the assurance is 
to be made should appear personally before the board 

•of directors; but as this may be highly inconvenient to 
persons at a distance, it is generally dispensed with, on 
the payment of a certain sum per cent., estimated on 

I the first payment only. It is perfectly reasonable that 

pa fine for non-appearance should be required, because 

•it in fact causes an additional risk, for even when the 
certificates required from the referees are quite satis- 
factory, it sometimes happens that a board of directors 
refuse to undertake the risk from some appearance of 
latent disease, which a medical eye may detect in the 

-countenance long before it becomes observable to 

:others." 

* It will be observed that it had become the practice 



388 



Things Agents Should Know. 



also to have some physician among the directors, s( 
that the company might at least have the advantage of 
a physician's superficial examination by looking at the 
person applied. Out of this practice was destined to 
grow the now universal custom of careful medical in- 
spection. 

It may be interesting to know what was the rate of 
fine for non-appearance before the directors. It varied 
from one-half of one per cent, to one per cent, of the 
sum insured, payable once only. 



Historical. 389 

OLDEST STOCK COMPANY IN THE UNITED 

STATES. 

The oldest company with capital stock, a part of the 
business of which was to sell life insurance, was the 
Massachusetts Hospital Life Insurance Company of 
Boston, which was organized in 1818, with a capital 
stock of $500,000. In addition to its life insurance 
powers, it was given authority to manage estates in 
trust, and to deal in real estate. These branches of its 
business were not embarrassed by any harsh or unrea- 
sonable restrictions or burdens. 

On the contrary, as to life insurance, its charter pro- 
vided that the company should be required to pay to 
the Massachusetts General Hospital one-third of the 
net profits each year. In 1858, on November i, when 
a report was made to the Commissioners of Massachu- 
setts, that company had 152 life policies in force, insur- 
ing $133,200. It had at the same time seventy-three 
annuities outstanding. Singularly enough, one of 
these, for $40 per annum, according to the statement of 
the Commissioner, "could have no value according to 
our table of mortality, the person to whom it was due 
having already exceeded the age of 100 years." 

Handicapped thus from the start by being required 
to pay one-third of its profits in support of the hospital, 
the company promptly withdrew from the life insur- 
ance business. Of course, this alone would have been 



390 Things Agents Should Know. 

sujfficient to cause it to withdraw; but it is very doubtful 
whether it would not have w^ithdrawn anyhow. The ex- 
perience has been that the companies which organized 
in those early days to do both a trust and a life insur- 
ance business^ whether in Pennsylvania, New York or 
Massachusetts, have for the most part done a trust 
business principally or exclusively. 



Historical. 391 

A LIFE INSURANCE CHARTER REFUSED IN 

1833- 

In 1833 a petition was presented to the legislature of 
New York for a special charter for an institution to be 
known as the American Life Insurance and Trust Com- 
pany. The petition was referred to the Committee on 
Banks and Insurance Companies which reported ad- 
versely, and which gave as its reason the following: 
''But your committee are constrained to express the 
opinion that the rate of premium on life insurance now 
exacted by the New York Life Insurance and Trust 
Company is much too high to deserve the encourage- 
ment of the legislature, and that the business of life in- 
surance as conducted by that company will not sub- 
serve the ends above mentioned, and does not furnish 
to individuals having a surplus income the means of 
profitably investing such surplus for the future benefit 
of his family, or others." 

The committee endeavored to demonstrate the prop- 
osition that the rates were too high by referring to the 
fact that, if the premiums were accumulated at 4 per 
cent., compound interest, the accumulations would ex- 
ceed, at the end of the expectation of life, the face of 
the policy. 

It is interesting to compare these rates with the rates 
of premium nowadays. The premium at age fifty-five, 
as quoted in the report, was $5.78 per annum on each 



392 Things Agents Should Know. 

$100 insured, equivalent to $57.80 per thousand. This 
was non-participating and is higher than the non-par- 
ticipating rate of the Travelers, which is, at the same 
age, $49.40. It is not quite so high as the participating 
rate of the leading New York companies, which is, at 
the same age, $61.60 per $1,000. 

The system of selling a paid-up policy is peculiar, and 
deserves to be mentioned here. The following is from 
the committee's report: ''A practice which is said to 
have found some encouragement with the company re- 
ferred to is that of an individual purchasing an annuity 
of the company by the present payment of a gross sum., 
and then insuring upon his life an amount for which the 
annuity thus purchased constitutes the appropriate 
annual premium, by immediately pledging the former for 
the payment of the latter. To exemplify this double 
operation the committee have again assumed the case 
of an individual of the age of fifty-five years, who, by 
the payment of $1,200, secures an annuity payable dur- 
ing his life of $100. By pledging this annuity he effects 
an insurance on his life, by which he secures to his 
family at his death the sum of $1,730." 

This is equivalent to a single premium of about $700 
per $1,000 at age 55. The full participating rate of the 
leading New York comipanies is, at the same age, 
$736.38 per $1,000; but the non-participating rate of the 
Travelers is only $558.75. 

Taking into account the fact that interest was much 



II 



Historical. 393 

higher in those days, it does appear that the rates 
charged were really excessive; but it seems rather queer 
for a legislative committee to report unfavorably as to 
chartering a competing company because the existing 
company charges too high a rate. 

Another objection v^as that in the judgment of the 
committee no such company should be permitted to as- 
sume obligations for more than two and one-half times 
its actual paid-in capital. This conclusion was arrived 
at by reasoning from analogy, that being the basis of 
the limitation to note issues by banks. 

When the report was made the New York Life and 
Trust Company had been in business for about two 
years, with the enormous paid-in capital for those days 
of $1,000,000. It had done a large trust and banking 
business, its deposits amounting on January i, 1833, to 
$2,475,523; but its life insurance business was in strik- 
ing contrast with this. It had insured but 183 persons, 
of whom but 150 were still with the company on Janu- 
ary I, 1833. Its premiums for the year 1833 were only 
$9,333.73, and its total premiums for two years' business 
were $18,217.67, showing that there was no material in- 
crease in the second year over the first. The total in- 
surance in force amounted to only $454,550. 

Perhaps the members of the committee thought that 
there was not enough to divide. 



J94 Things Agents Should Know. 

THE BEGINNING OF LIFE INSURANCE 
! AGENCIES. 

The earliest life insurance companies were composed 
of men who wished insurance, and any other person 
who wished insurance had to apply direct to the com- 
pany for it. At about the beginning of this century 
the business began to be conducted by agents, which 
practice was thought so reprehensible by one of the most 
famous actuaries and writers on insurance^ Francis 
Baily, that in his book, The Doctrine of Life Annuities and 
Life Assurances, he referred to the practice in the follow- 
ing severe manner: 

"A more just and equitable scale ought to be adopted 
by those societies who do not make any return to the 
assured of the vast profits that arise from this species 
of daily traffic, and would tend more to the increase of 
their business in this way, and would likewise be more 
honorable to themselves, than the disgraceful practice 
of bribing solicitors, agents and others to effect insur- 
ances at their offices, thereby notoriously inducing those 
parties to sacrifice the interest of their employers and 
their friends. For the money which is applied to this 
base purpose can be considered in no other light than as 
unjustly taken from the pockets of the assured, and 
would be more properly and more equitably employed 
in being appropriated towards a reduction of the rate 
of assurance; since, if the company can afford to allow 



Historical, 395 

it to the agenty it surely can afford to allow it to the 
principal, and it evidently belongs more jiistly to the lat- 
ter than to the former." 

As if this were not enough, he added a foot-note, 
which is here reproduced^ italics, punctuation and all: 

''Many of the public companies, who do not make any 
return of the profits to the assured, allow a liberal pre- 
mium (generally 5 per cent, on the payment made) to 
any person who will procure an insurance to be effected 
at their office; and this commission is also allowed to 
any person who makes the annual payment provided it he 
not the party himself. An artifice which is easily seen 
through, but which opens such a door to fraud and im- 
position that it cannot be too severely reprobated. 
And however much it may be sanctioned by the direc- 
tors in their public capacity, we are all aware what their 
emotions would be if they discovered any of their trades- 
men tampering with their own servants in this opprobri- 
ous manner, since they must well know who would 
eventually pay for it. I omit to give the names of those 
companies who have adopted this nefarious practice, 
under the hope that such a mean and improper artifice 
will not be encouraged in future.'* 

It will be observed that life insurance agencies prac- 
tically sprang from a system of rebating to the em- 
ployes, friends or relatives of the applicant. Some- 
thing very like our modern rebating, therefore, seems 
to have produced the establishment of agencies. It also 



396 Things Agents Should Know. 

appears that the modern practice of procuring "spot- 
ters" among the friends and relatives of the prospective 
apphcant by secretly promising a commission is a very 
venerable one. 



I 



Historical. 397 

AN OLDEN TIME ARGUMENT AGAINST 

AGENTS. 

Samuel Brown, F. I. A., under the pseudonym of 
"Crito/' contributed to the Post Magazine^ of London, 
in 1847, a communication on Commission on Life Assur- 
ances, beginning with the following, which shows the 
common estimate then of the agent's occupation, as well 
as many peculiar facts concerning his compensation in 
those days: ''The subject of commission paid by assur- 
ance companies for the purpose of increasing their busi- 
ness, or, as many are led to believe, for the more pa- 
triotic motive of extending the benefit of assurance to 
the unreflecting public, is forcing itself daily more on our 
notice. If it be argued that commission is not offered 
in the shape of bribe, since the members of an honor- 
able profession would scorn the base insinuation, for 
what purpose is the inducement so constantly held out, 
more especially by the new companies to whom the 
accession of business is of the most importance? Do 
the offices combine together for the purpose of volun- 
tarily reducing their premiums, or insisting on reward- 
ing the agents for their public spirit and patriotic feel- 
ings in thus promoting a great national object? Or is 
it not rather notoriously the fact that, either by private 
or public arrangement, some of the companies continu- 
ally step ahead of their fellows and hold out the gilded 
attraction in a still more glittering light? We hear of 



398 Things Agents Should Know. 

one office which has advanced from the sober, steady 5 
per cent, to an increase of 5 per cent, more for the first 
year, and of another which oiTers 35 per cent, on the 
first year's premiums only, and though a very simple 
calculation will show us that, at the average age at 
which parties assure, 5 per cent, per annum is worth 
more, by any standard tables of annuity, than 7 years* 
purchase (perhaps double this value would be under the 
mark) and consequently that the former is a much bet- 
ter bargain for the uncalculating, unselfish adviser than 
the latter; yet the assertion which we have made above 
that the temptation must be increased or varied so as 
to present a more attractive shape seems fully proved. 
Where is all this to end? If the companies are to con- 
tinually underbid each other, the limit will only be 
reached where the agents obtain the highest and the 
assurers the lowest amount of profit at which the com- 
pany can exist. What is to be done next? Like a 
competitor who has run himself out of breath the com- 
pany and its circle of paid supporters will, with mutual 
vexation, observe their more vigorous opponents pass 
them in the race and will stand with regret to watch 
others with greater strength of purse overtake them in 
the rush for professional or public favor. In the mean- 
time, wdio pays the expense of this lively contest?" 

Probably nobody nowadays would consider that there 
was any danger of a company's being extravagant which 
paid commissions as small as those named by the irat^ 



Historical, 399 

and indignant Mr. Brown. There is, at once, a striking 
analogy between his indignation and that of the modern 
foe of rebating, while at the same time the difference 
in the point of view is very manifest, since he was think- 
ing primarily of the interests of the insured, while the 
enemy of rebating is thinking primarily of the interests 
of the agent and company. 

This quotation is interesting also as indicating that 
the progress of insurance agents on the whole has been 
toward respectability and not away from it. In Mr. 
Brown's days men w^ere life insurance agents, if at all, 
surreptitiously and shamefacedly. To-day if any agent 
fails to command the respect due a gentleman it is cer- 
tain to be either because he is not a gentleman or be- 
cause some other agent has not conducted himself as 
a gentleman, and he is made to suffer vicariously. 

Mr. Brown proposed as a substitute for agent's ser- 
vices the following: ''It is a point, too, w^orthy of long 
consideration whether the members of a society would 
not feel it incumbent upon themselves to introduce their 
own friends without other fee or reward than that of 
strengthening the company in which they are interested 
themselves, and profess to be the best adapted for their 
friends also, rather than depend upon a system, the 
eflfect of which, however it may be intended for a good 
object, is to act as a bribe; and few will deny that brib- 
ery, under whatever name it may be concealed, is 
vicious in principle and indefensible in practice. It is 



4oa Things Agents Should Know. 

a system which is easy to introduce, but from which 
we> as yet, know no instance of a society vextrkat- 
ing itself. These are some of the principal objec- 
tions to the practice. We may refer to another 
which we have heard miade, but to which, it is fair to 
state, we cannot attach much importance; that as the 
agents are more interested in the quantity than the 
quality of the goods suppHed^ if we may use such a 
term, the offices might suffer materially by the introduc- 
tion of bad lives." 



• 



Historic aL 401 

THE FIRST ACTUARY IN THE UNITED 

STATES. 

It would be very foolish probably for anybody to en- 
gage in a dispute as to who is the first actuary in the 
United States in reputation and ability. The reader 
may be surprised to know that it is almost as fruitless 
to try to solve the question of who was the first actuary 
in the United States from the standpoint of priority. 

The title was claimed definitely by N. G. De Groot, 
who says in a letter to the American Life Assurance 
MagazinCy dated December 9, 1872: 'T am the oldest 
actuary in the United States, having acted profession- 
ally in London and elsewhere since 1826, and having 
been actuary of one of the New York companies from 
1 85 1 to 1868.'' 

It will be observed that Mr. De Groot, while he may 
have been the oldest actuary in the United States from 
the standpoint of his practice of the profession, did not 
begin that practice in the United States until 1851. Be- 
fore that date, and, in fact, practically from the begin- 
ning of the company in 1846, Charles Gill had per- 
formed the duties of the office of actuary for the Mutual 
Life Insurance Company. 

Other persons long before that 'ime had possessed 
some smattering of actuarial knowledge. The first 
person who bore the title of insurance commissioner, 
a Mr. Blunt, of Brooklyn, who was appointed as a spe- 



402 Things Agents Should Know, 

cial commissioner by the New York Comptroller, 
shovred in his attack on the New York Life Insurance 
Company that he understood the elements of actuarial 
science. The only reason, no doubt, that he did not 
hang out his shingle was because he did not get an op- 
portunity to examine the company and thereby air his 
knowledge. One of the effects of the attack was to 
cause the company to employ a person who was familiar 
with insurance mathematics as practiced in the office of 
the Equitable of London, to do actuarial work. 

Far back of the dates mentioned, however, at or be 
fore the time the Presbyterian Ministers' Fund was or- 
ganized, and when the New York Life Insurance and 
Trust Company cam.e into the field later and a number 
of Philadelphia life and trust companies appeared also, 
there were persons who knew^ something about the rudi 
ments of actuarial science. 

Notwithstanding these things, and notwithstanding 
also the importation of Mr. De Groot and the appoint- 
ment of Mr. Gill, followed later by the appointment of 
Mr. Homans, largely because, he was the son of his 
father, who was a prominent man in New York finan- 
cial circles, the fact remains that before Elizur Wright 
began his crusade the country was without a person 
who actually achieved a high reputation on account 
of his actuarial attainments. Mr. Wright gave a tre- 
mendous impetus to actuarial studies, and until the com- 
panies were supplied with skilled men his services were 



r 



HistoricaL 403 

in very great demand throughout the country. William 
E. Starr, actui^ry of the State Mutual of Worcester, 
Massachusetts, has been actuary of that company since 
its organization in 1848, and still serves it, though 87 
years of age. His engagement seems to have been 
earlier than that of Mr. De Groot. 



4C>4 Things Agents Should Know. 

STAMP TAX THAT BROUGHT THE REVOLU- 
TION. 

In these days of stamp taxes levied by the United 
States government, and, indeed, in all days, since in- 
surance companies are always favorite marks for taxa- 
tion, it is well to know to what exactions our fore- 
fathers in the early history of life insurance were com- 
pelled to submit. -j 

Incidentally we shall also thus learn what our fore- fl 
fathers would not and did not submit to. For the im- 
position of these taxes upon residents in the American ij 
colonies lost them to Great Britain and divided the 
English-speaking people of the world. Taxes upon in- 
surance policies were a part of the offensive stamp tax 
act. 

The tax remained substantially the same in England 
from the date of its original levy, in the days of George 
III, until after the middle of this century. The follow- 
ing are the figures, according to David Jones in his 
great work on "Annuities and Reversionary Payments:'* 



For sums not exceeding £50 £0 2s. 6d. 

For from £50 to £100 o 5 o 

For from £100 to £500 100 

For from £500 to £1,000 200 

For from £1,000 to £3,000 3 o o 

For from £3,000 to £5,000 400 

For more than £5,000 500 



/ 

4 



Historical. , 405 

It will be observed that these are pretty stiff figures, 
and also that the best end of it is given to large policies, 
while policies for such amounts as are commonly sold 
by our industrial companies are very heavily taxed. 

Compared to these exactions our taxes levied during 
the Civil War period were modest indeed; they ran as 
follows : 

Sums not exceeding $1,000 $025 

From $1,000 to $5,000 50 

Above $5,000 I 00 

The Spanish War tax, recently levied, is 8oc. per 
$1,000. 



n 



406 Things Agents Should Know, 

AMERICAN INSURANCE ABROAD. 

The first American insurance company to begin a 
foreign business was the Germania Life of New York 
in 1869. This company, indeed, was from the start 
almost as much a German company as an American 
company, a very large proportion of its business being 
done in the old country. 

The same year the Home Fire Insurance Company, 
of New York, began business both in Germany and 
Great Britain. American fire insurance companies;, 
however, have kept pretty well at home; for not merely 
was the precedent of the Home not followed, but its 
own foreign business was abandoned. 

The Equitable of New York was the first American 
life insurance company to invade Great Britain. It be- 
gan business in Ireland and the North of England early 
in 1870. The New York Life followed very shortly, 
beginning business in London and on the continent of 
Europe in April, 1870. The North American Life In- 
surance Company, since defunct, also tried doing busi- 
ness in Great Britain. 

The last-mentioned company reinsured the Eagle, a 
British com.pany of considerable magnitude. The New 
York Life Insurance Company at one time was ex- 
pected to reinsure the European, but fortunately for the 
American company it did no such thing. The Insurance 
Cyclopcedia of Cornelius Walford, from which these 



Historical 407 

facts are taken, was written at the time when these 
negotiations were pending, and he says of the matter; 
*'It will be a great blessing to the policyholders to fin 1 
themselves in such a sound company/' 

Singularly enough British life insurance companies 
have never been able to do well in the United States, 
while British fire insurance companies have done very 
well indeed. On the contrary, American life insur- 
ance companies have scored a success in their for- 
eign business; while American fire insurance com- 
panies have found it desirable to remain at home. The 
business of American life insurance companies abroad 
exceeds $220^000,000 at this time. 



4b8 Things Agents Should Know, 

THE ORIGINAL UNDER-AVERAGE COMPANY 
IN THE UNITED STATES. 

The more modern development of the insurance of 
under-average risks began about seven years ago, when 
the Life Insurance Clearing Company, of St. Paul, now 
of badly besmirched memory, was organized, and in 
spite of the fact that that company has gone down this 
form of insurance has found lodgment elsewhere, and is 
now considered a permanent feature of life insurance. 
By many in the life insurance business it has been sup- 
posed that this was the beginning of the insurance of 
impaired lives in the United States. The beginning, 
however, was thirty-five years ago, viz., in the year 
1864, and the first company to attempt that business in 
the United States was the ambitious and very enter- 
prising Universal of New York. 

Concerning that company and its proposed policy 
Elizur Wright, in his report for 1865 as commissioner 
for Massachusetts, speaks in the following favorable 
terms: ''The Universal^ a new company turned out by 
the same piece of legislative machinery, stands before 
the public with a charter w^hich may well command 
special admiration. It is proper to say here that the in- 
corporators of this, as well as of the company above 
named, are gentlemen of the highest respectability and 
of great experience in life insurance. For this very 
reason none better than they will appreciate the force 



Historical. . 409 

of the remarks we feel called to make. A part of the 
business they propose is that of insuring, at advanced 
rates, such portions of the lives re'ected by other offices 
as they may consider properly insurable in that way. 
This has been practiced with apparent safety to the 
company and benefit to the public by several companies 
in England, and that it is desirable here no one who has 
any faith in life insurance or acquaintance with the busi- 
ness can doubt.'' 

The initiative of the Universal was followed by sev- 
eral companies. There is no evidence that the under- 
average business was in itself disastrous. But it so 
happened that every one of the companies which en- 
gaged in it failed. An examination of the facts will 
show that their failure is fully explained, without as- 
suming that it was in any way due to their having en- 
gaged in this branch of business. But, of course, it was 
natural that the other companies of the country should 
be disinclined to take up a branch of business which had 
not been proven successful by a single company that 
engaged in it making a success. Therefore, it hap- 
pened that persons who were rejected as first-class lives 
were deprived for many years of the privilege of obtain- 
ing insurance at all. 



4IO Things Agents Should Know. 

RENEWABLE OR CONTINUABLE TERM IN- 
SURANCE. 

A very popular form of life insurance for a number of 
years has been known as renewable term. The ^tna 
and the United States, among the older companies, and 
the Provident Savings and most of the other newer 
companies, have done a large business in term insur- 
ance. The nature of that class of insurance is under- 
stood sufficiently by all insurance agents, but a little 
knowledge of the history of its invention and introduc- 
tion in the United States will not come amiss. 

In the '70's, or, to be more specific, about 1873, the 
two older companies mentioned began to write this 
form of insurance. The ^tna had a copyright of its 
plan under the name of ''Renewable Term," and the 
United States had one under the name of "Continuable 
Term.'' The former name has become a generic term, 
and the -^tna, to its credit be it said, has, as far as is 
known, never tried to enforce its claim to the exclusive 
right of using the name. 

Just which company was on the market with the plan 
first is a matter open to dispute. The -^tna has laid 
claim always to having been the pioneer, and the claim 
is borne out in part, at least, by the fact of the name 
which it employed. The name seems to be the most 
reasonable and natural, while "continuable'' is an awk- 
ward expression and far less likely to have been selected 



I 



r Historical 411 

except under the influence of the knowledge that the 
better name had been appropriated. 

In the American Life Assurance Magazine in 1872 ap- 
pears the following statement: ''W. D. Whiting, Esq., 
the talented actuary, has recently brought out a new 
plan of life insurance, the copyright of which has been 
assigned to the United States Life Insurance Company, 
of New York. The plan is so novel, so practicable, and 
withal it contains so many elements of popularity that 
w^e shall devote to it the financial article of the month." 
Then followed a description of the plan, including most 
of the salient features that are familiar now. The rate 
w^as $10.77 ^t age 25; $11.76 at age 30, and $13 at ago 
35 for a five-year renewable term policy. 

The ^tna for a long time made a specialty of the ten- 
year term almost exclusively^ and rarely sold policies 
for any other term on a renewable basis. The plan of 
the ^tna and that of the United States involved the ac- 
cumulation of surplus throughout the period of the 
policy, and the application of it, if the policy was re- 
newed, to make the premium for the succeeding ten 
years the same as the premium paid formerly. It is 
said that one of the companies, at least, has renewed the 
poHcies successfully for a third term of ten years at the 
original rate, the insured being twenty years older. 



I! 



4.12 Things Agents Should Know, '' 

LAWS REGULATING INSURABLE INTEREST. 

Originally in Great Britain and this country insur- 
ance was considered gambling, and it was not always 
designated as a "hedge/' The early English companies 
had no hesitation whatever about issuing a policy, even 
of life insurance, to a person who had not the remotest 
interest in the person insured; and among private under- f| 
wTiters the conditions were worse. Thus, when a man 
was put in jeopardy for a crime, betting in the form of Ij 
insurance on his life was frequent. When battles were 
to be fought large premiums were paid for insurance on 
eminent participants. There is a record that when 
George II fought at Dettingen a premium of 25 per 
cent, was paid for an insurance of his return. The 
lives of adventurous persons, eminent in counsels of 
state or in war, were made favorite objects of specula- 
tion. 

In the state of New York in 1834 a legislative com- 
mittee recommending that a charter be not granted to 
a proposed rival of the New York Life Insurance, An- 
nuity and Trust Co., which monopolized the life insur- 
ance business, spoke of life insurance as gambling, and 
endurable only because of commercial necessities. 

In 1774, only two years before our declaration of in- 
dependence, Great Britain enacted a law that defined in- 
surable interest and prohibited insurance in favor of per- 
sons who had no interest. The prohibition is peculiarly 



Historical 413 

sweeping and positive, thus: ''No insurance shall be 
made by any person or persons, bodies politic or corpo- 
rate, on the life or lives of any person, or persons, or 
any event, or events, whatsoever, wherein the person, 
or persons, for whose use or benefit, or on whose ac- 
count such policies shall be made, shall have no interest, 
or by way of gaming or wagering; and every insurance 
made contrary to the true intent and meaning hereof 
shall be null and void to all intents and purposes." 

The act was known as the Gambling Act. It did not 
by its terms extend to America, and, as most of the 
judges of Great Britain held that gambling insurances 
were good at common law, it has been thought by many 
that the American colonies and states were without such 
laws, unless especially enacted therein. The fact is, 
however, that in most states the law existing in Great 
Britain at the time independence was declared is con- 
sidered to be law here, and the precedents are followed 
wherever there are no statutes. Moreover, our Ameri- 
can judges read differently the common law, agreeing 
with a respectable minority of the British courts that 
gambling insurances are void as against public policy. 

There is, however, an increasing tendency in this 
country to feel that nobody is so well qualified to judge 
who has a reasonable expectation of benefiting by his 
living as is the man himself, if in full possession of his 
faculties. From that sentiment the practice of writing 
policies in favor of nominees, with the privilege of 



414 Things Agents Should Knozv, 

changing the same, has grown. It leaves the whole 
question of insurable interest open, to be settled after 
the death of the insured. Another way to circumvent 
the restriction has been to issue insurance in favor of 
the person whose life is covered, and have him pass title 
by assignment. The trouble is that such assignments 
without sufificient consideration are considered by many 
courts, although by not all, to have passed title to no 
larger part of the proceeds of the insurance than the 
amount paid as a consideration, with interest thereon. 
There is a laxity, however, nowadays as to lawful in- 
terest, accompanied by anything but laxity as to real in- 
surable interest. That is to say, there is a recognition 
of the principle, without slavish subserviency to its form 
as crystallized in law. No company would issue a policy 
on a man's life, the premium to be paid by the bene- 
ficiary, unless assured that the beneficiary's interest 
was, and would continue to be, larger than the insur- 
ance. But, on the contrary, when the insured pays the 
premium, there is a disposition to let him choose the 
beneficiary; and, unless the title of the beneficiary is dis- 
puted before the claim is paid, it is paid usually as desig- 
nated without protest. American courts are not prone 
to compel double payment^ nor to consider actions 
brought to recover where a company has paid the 
claim, provided there appears to be no evidence that the 
company was advised, either actually or constructively, 
of a counter-claim. Sometimes the companies, when 



Historical. 415 

doubtful about the right of the beneficiary to recover, 
require a bond before paying the money. If there are 
contesting claimants, the companies wash their hands 
of the whole matter by paying the amount into court to 
await its disposition. 



I 



416 Things Agents Should Know. 

ENFORCING PUNCTUALITY. 

Nowadays policies of life insurance are so liberal con- 
cerning grace in the payment of premiums, and such 
reasonable concessions are made to the insured, that it 
is difficult to conceive of companies constantly taking 
advantage of their policyholders, as was done frequently 
by many companies, and habitually by some, in the 
'70's. There would be little, if any, money for the com- 
pany in such a course now, because very liberal sur- 
render values are given and the surrender values attach, 
in some form, without action on the part of the insured 
and immediately after a failure to pay premiums. 

Years ago nearly all of the companies were very ex- 
acting and the surrender values were very illiberal. It 
appeared, therefore, to be a wise and profitable thing 
to take advantage of the insured whenever^ by any neg- 
ligence, he permitted his premium to remain unpaid. 
Therefore, it happened that complaints appeared fre- 
quently. Now w^e hear only occasionally of a case of 
that sort, mainly when companies give secret orders 
that the old and harsh rule shall be enforced against 
certain policyholders whose patronage is not desired. 

The reason for such behavior in those days is not far 
to seek. A very large num.ber of American companies 
were tottering. It seemed reasonable that they might 
be able to cure their impairments by dealing as harshly 
with the insured as the case required, so that the claims 



Historical. 417 

of many of the policyholders might be forfeited to the 
company, thus relieving it from liability on that account 
and contributing to meet other liabilities. That course 
was followed generally by the concerns, disastrously by 
almost all of them, but with some measure of success by 
a surviving company, the National Life Insurance Com- 
pany, now of Chicago. 

So loud and numerous were the complaints against 
the procedure that the matter reached the New York 
legislature, and a bill, that passed both houses in 1873, 
provided that in the payment of premiums a grace of 
30 days be given, and that payment might be made by 
mailing a certified bank check, draft or post-office order. 
The bill did not receive the approval of the governor 
and failed to become a law. 



4i8 Things Agents Should Know. 

HOW DR. PRICE ANTE-DATED DARWIN. 

It is interesting to life insurance men to know that 
Dr. Richard Price, author of the Northampton Table, 
and one of the earliest and most famous actuaries, who 
was, besides, a friend of Benjamin Franklin, and an 
earnest student and scientist, preceded Darwin in dis- 
covering some of the effects of sexual selection. The 
difference is that Dr. Price dealt with men and not 
with animals in deriving his conclusions, and also that 
he did not carry his reasoning to its logical conclusion. 

It will be remembered that Darwin demonstrated 
that in all probability the variations which take place 
in species are perpetuated through a system of con- 
scious selection by the females of those males of their 
species who are most beautiful in their eyes. This must 
be sharply distinguished from his other theory of natural 
selection, which was the ''survival of the fittest,'^ that is 
to say, the survival of those specimens of each species 
which were best able to cope with the conditions. Sex- 
ual selection is but a part of natural selection. A large 
part of the struggles between males of each species, 
during which strife many of them succumb, is for the 
possession of the females; but this is not what is meant 
by sexual selection. 

Singularly enough among men, owing to the com- 
paratively dependent financial position of women in the 
past, sexual selection has taken place mainly on the 



Historical. 419 

part of the males instead of the females. It was that 
fact which Dr. Price pointed out. He was compelled 
to observe it in order to account for the peculiar fact 
that unmarried women did not live so long, on the aver- 
age, as married women, despite the dangers to which 
childbirth exposed the latter. This could only be ac- 
counted for on the theory that unmarried women were 
on the whole of less vitality. This in return could only 
be accounted for on the theory that only the best speci- 
mens, physically, are selected for marriage. Therefore, 
Dr. Price came to the conclusion that there is a process 
of natural selection which results in the mothers of the 
race being somewhat more vigorous than women whr 
are not chosen in marriage. 



Miscellaneous 



SIMPLE AND COMPOUND INTEREST. 

Very few persons appreciate what is the effect of 
compounding money. If most investors of money ac- 
tually collected interest promptly and reinvested the 
same, they would soon own the earth and the fullness 
thereof. It is perfectly fair for an agent to say to his 
"'prospect'' that unless he set out upon some such sys- 
tem of saving as is employed in a life insurance policy, 
he will in all probability not succeed in obtaining com- 
pound interest upon his funds at any rate, whether 
large or small. 

The manner in which money increases at compound ! 
interest is really marvelous. Compared with it, simple 
interest seems to be creeping. The following table, 
taken from Cornelius Walford's Insurance Guide and 
Hand-Book, illustrates the relative time it takes to 
double money at simple and compound interest: 

420 







Miscellaneous. 




2 


per cent. Simple 50 Years. Compound 35 


2V2. 


ti « 


'40 




28 


3 


H t 


' 33V2 ^ 




231/2 


3V2 


I< t 


' 281/2 ' 




201/4 


4 


.1 . 


2S 




I7V2 


4V2 


4 


' 22^^ ' 




15% 


5 


i« t 


20 




14% 


6 


<< i 


' 16V2 ' 




12 


7 


. H t 


' I4V4 ' 




101/4 


8 


a » 


* 121/2 ' 




9 


9 


>( t 


II 




8 





" 


10 




7V4 



421 



Years. 



In long periods of time the difference between the ac- 
cumulations is still greater in proportion. One of the 
earliest actuaries, Francis Baily, calculated that if up 
to the year 1810 one English penny had been out at 
5 per cent, compound interest from the birth of Christ, 
it would have amounted to more money than could be 
expressed by 357,000,000 globes, each as large as the 
earth and all of solid gold, while if it had been put out 
at the same rate of simple interest, it w^ould have been 
only 7 shillings 7 pence ^ penny. 

The fact is that in these modern days of concerted 
action, about all a man has to do in order to accumu- 
late money is to put it by, keep his hands off and let it 
grow. The average man proceeds about as the foolish 
boy in the story we used to have in our readers, who 
■ dug up the corn which he had planted in order to see 
if it had begun to grow. Almost all men are in the 



422 Things Agents Should Know. 

habit of taking up their investments, and of paying Httle 
attention to the trifling amounts which come in as in- 
terest and seeing that they are promptly reinvested. 

Through the medium of a hfe insurance pohcy the 
insured is freed from the necessity of bothering with re- 
investment. The fund automatically grows. It shares 
in the average profits realized by the company. 



4 



Miscellaneous. 423 

ARE BROWN EYES INDICATIVE OF SHORT 

LIFE? 

In the examination blanks of some, if not all, life in- 
surance companies at the present time there appear in- 
quiries as to the color of the hair and eyes, and as to 
the complexion. Of course, most life insurance agents 
suppose that the inquiries are for statistical purposes or 
identification. No doubt they answer such purposes, 
among others, and the agent is warranted further in 
supposing that no special importance is attached to the 
answers, because he does not find that lives are rejected 
on account of the color of the eyes or hair, or, except in 
extreme cases, on account of the complexion. 

So far no statistical uses have been made of the in- 
formation obtained. A number of years ago, however, 
reasoning on far insufficient data, medical directors and 
others used to speculate on the question whether some 
indication of long life might not be drawn from the 
color of the eyes and hair. The speculation was inter- 
esting, and with some very able men it became a hobby. 

Thus, for instance. Dr. Lambert, who has been for 
many years a medical director of the Equitable, but who 
was connected with another company in those days, 
stated in the early '70's that it was his belief "that 
brown eyes were indicative of short life." He said fur- 
ther that for 30 years he had looked in vain in the 



4^4 Things Agents- Should Know. 

United States and Canada for a single person with 
brown eyes who attained the age of 70. 

Investigation of lives accepted by the Equitable under 
his administration would disclose, no doubt, that Dr. 
Lambert did not attach enough importance to the spec- 
ulative opinion to w^arrant him in rejecting persons on 
account of the color of their eyes. But the presence of 
this inquiry in many blanks is a monument to the one- 
time view that there might be some key to possible 
longevity as simple as the mere color of the eyes or 
hair. 



Miscellaneous. 425 

ADEQUATE PREMIUMS MORE IMPORTANT 
THAN CAPITAL. 

We are nowadays so accustomed to see the assets of 
life insurance companies mount up to sums which are 
enormously more than the capital stock, if any, that it 
is perfectly plain, or ought to be, that the capital stock 
in such an enterprise, so far as the additional security 
to policyholders is concerned, is not an important mat- 
ter after a company has once established itself. 

This is, of course, considering the capital stock as 
merely so much additional surplus, and without con- 
sidering any of those other advantages claimed for a 
stock management as compared with a mutual manage- 
ment. Which of the two classes of management is the 
better and more economical is sjtill a mooted question; 
and, in fact, it may be said that experience, in this coun- 
try at leasts shows that both classes of management may 
be entirely successful and absolutely stable. 

The importance of charging a sufficient premium is 
seen to be far greater than the importance of a com- 
paratively large capital. With insufficient premiums 
the enterprise must in the long run prove unsuccessful, 
and the capital must be absorbed and lost. With ade- 
quate premiums, and especially if they are somewhat 
redundant, it has been demonstrated that an enterprise 
'■ of this sort may push forward to success without any 
capital whatever. 



426 Things Agents Should Know. 

On both of these subjects the eminent actuary, Grif- 
fith Davies, in his Observations on Life Assurances, pub- 
Hshed in 1825, makes the following comments: ''The 
evil of charging excessive premiums cannot, however, 
long remain in a country where capital is allowed to 
flow freely from one channel to another, as the natural 
effects of competition must necessarily reduce the profit 
on life assurance to the level of that derived from other 
species of investments; on the contrary, the peculiar 
nature of the subject renders it extremely dangerous 
lest the rates for life assurance should be so far reduced 
as to diminish the security of those who may select this 
mode of accumulating their savings for the benefit of 
their families; for, if the premium charged by societies 
established for these purposes should by excessive com- 
petition be rendered inadequate to the payments of the 
claims, which sooner or later must come upon them, 
whatever honor, wealth or probity the present man- 
agers may possess, whatever capital they may boast of, 
or however prosperously they may appear to go on even 
for a considerable time, the result must ultimately ter- 
minate in litigation, disappointment, and ruin, and, in- 
stead of a national benefit, life assurance in such a case would 
inevitably become a national calamity,'^ 

The unhappy termination of so many of our assess- 
ment societies, through collecting inadequate premiums, 
shows that Mr. Davies, because of his knowledge of 
causes and consequences^ correctly foretold their fate. 



« 



Miscellaneous. 427 

WALFORD'S TRIBUTE TO AMERICANS. 

In no country in the world has insurance and espe- 
cially life insurance been so favored as in the United 
States of America. Not only is the volume of insur- 
ance greater, and also the volume transacted each year, 
but this is also true per capita of population. More- 
over, there is greater appreciation of popular works 
upon the subject as distinguished from strictly technical 
books. This fact is attested by the great hold the pub- 
lished works of Elizur Wright obtained upon the people 
and the merited reputation which they gave him. Plain, 
simple, direct statements of the principles underlying 
the practice of insurance have always appealed to the 
American people. 

This is so true that many of the English authors, writ- 
ing upon the subject of insurance within the last 50 
years, have relied quite as much upon the sale in 
America as they did upon the sale at home. Indeed, if 
we may accept the testimony of Cornelius Walford, 
author of the Insurance Guide and Hand-Book and of the 
Insurance Cyclopcedia, which latter work was left unfin- 
ished at his death, he was far more encouraged by the 
appreciation of American readers than by the apprecia- 
tion of his fellow-countrymen. 

,. In the preface to his cyclopaedia appears the follow- 

j' 

iiig statement: "I cannot tell how far the work may 
even be welcomed in a popular sense here — the de- 



I 



428 Things Agents Should Knozv. 

pressed state of our insurance interests, I confess^ 
causes me some misgivings. But I have one abiding 
consolation, and that is, that every page of it will re- jl 
ceive a hearty welcome on the other side of the Atlantic. 
There it is an axiom of the business, that knowledge is 
power; and in that spirit every word written, either upon 
the former history or present practice of insurance, finds 
in the great body of insurance officials, agents and can- 
vassers countless thousands of readers. I must own 
(and without intending the smallest direspect to insur- 
ance interests here) that the recognition of this fact has 
had a sustaining influence upon me; it has often flashed 
across me during the dreary hours of the night, im- 
parting a ray of hope to the heart and renewed power 
to the pen." 



Miscellaneous. 429 

CONSUMPTION AND OVERWEIGHTS. 

Dr. A. Huntington, for many years medical director 
of the New York Life Insurance Company, was in 1876 
medical director of the United States Life Insurance 
Company, and submitted on the ist of January of that 
year the result of ''a study of those risks, which, when 
compared with the American standard of heights and 
weights, show either an excess or deficiency of 15 per 
cent, or more of weight.'' There were 1,496 cases in 
all, of which 1,110 were overweights, 386 underweights. 
The overweights were on the average 2y per cent, above 
standard; the underweights 20 per cent, below. The 
expected deaths among overweights, according to the 
Actuaries' Table, were 95.61; the actual deaths were 
103. The expected deaths among underweights were 
26.05 ^^d the actual deaths were 42. 

The connection of the weight with the cause of death 
is far more apparent, however, when the causes of death 
are classified as follows: 

Causes of Deaths Among Overweights. No. of Cases. 

Apoplexy and diseases of brain 17 

Bright's disease 2 

Consumption 6 

Dysentery and diseases of the bowels 11 

Dropsy, diseases of heart and liver 28 

Erysipelas, pyemia, diphtheria and fevers 8 

Pneumonia and congestion of the lungs 7 

Poison, accident and violence 10 

Rheumatism 3 

Tumors and cancer 5 

All other causes 6 

Total 103 



430 Things Agents Should Know, 

Causes of Deaths Among Underweights. No. of Cases. 

Apoplexy and diseases of brain 4 

Bright's disease i 

Consumption 25 

Dysentery and diseases of bowels 3 

Dropsy, diseases of heart and liver 5 

Erysipelas and fevers 2 

Pneumonia i 

All other cases i 

Total 42 

Upon this Dr. Huntington made the following com- 
ments: 

'*By comparing the above with the analysis of the first 
1,000 deaths in the company at large, we have this 
showing: 

''Percentage of deaths in company at large from dis- 
eases of brain, heart and liver, 23 per cent. 

"From same diseases, in class of overweights, 44 
per cent. 

Now, among the underweights the comparison is: 
From consumption, in company at large, 27 per 
cent. 

"From consumption, in class of underweights, 59^ 
per cent." 

All mortuary records, in whatever company or coun- 
try^ have led to the same conclusion. Indeed, so close 
a connection has been traced between underweight and 
consumption that the more recent methods of treat- 
ment of the disease itself always involve overfeeding, 
especially with fat-producing foods. 



i(l\.T 



a- 



Miscellaneous, 431 



PREFERENCE ON LIQUIDATION. 

An interesting thing, not known to everybody, is 
that upon the winding-up of a Hfe insurance company 
the loss claimants stand in a very different relation, ac- 
cording as the company is stock or mutual. 

Pretty nearly everybody supposes that upon the 
winding-up of an insurance company the losses which 
have already occurred would naturally be paid first by 
the receiver, and thus obtain a preference. Just why 
one should think so it w^ould be hard to explain, except 
that one unconsciously relies upon the proposition that 
*'it is the business of insurance to insure.'' 

The fact is, however, that in cases of the winding-up 
of a stock company the loss claimants come in on the 
same basis with all other claims, including the claims of 
policyholders for unearned premiums. 

This was repeatedly decided to be the law in the liti- 
gation arising from the failure of life insurance compa- 
nies in the seventies. The contention that the loss 
claimants had any right to a preference was denied by 
the courts on the ground that, being creditors, they 
stood upon the same footing as all other creditors. 

It is otherwise in the case of mutual companies. In 

mutual companies the loss claimants are creditors and 

•the policyholders are not creditors, but members of a 

mutual company entitled only to their pro rata share 01 



432 Things Agents Should Know, 

what remains after the full claims of actual creditors 
have been met. 

Thus in the winding-up of a mutual life insurance 
company loss claimants would have the preference, as 
also would holders of matured endowments as against 
all claim for surrender values on the part of other 
policyholders^, whether life or endowment, while upon 
the winding-up of a stock company no such preference 
would exist. 

It is not clear just which of these tw^o things offers 
the agent the best of the argument. No doubt the 
agent of a mutual company, if selling pure insurance, 
could make out a good case in favor of his cause from 
these facts; and the agent of a stock company, if sell- 
ing endowment insurance, could make out an equally 
good case for his cause. 

Anyhow, the distinction is interesting. 



M isccllaneous. 433 

ELIZUR WRIGHT ON INSURABLE INTEREST. 

Some of the clearest writing that has ever been done 
upon insurable interest was by Elizur Wright, Com- 
missioner of Massachusetts, in his reports from 1859 
to 1864. The following are some quotations from 
them: 

''A creditor can justifiably insure the life of his debtor 
only for the purpose of securing his debt, and to the 
amount necessary for that purpose. But a bad debt 
cannot be turned into a good one in this way." 

''Insuring an unproductive life is like insuring un- 
salable goods against fire. In either case the company, 
in effect, offers a reward for the event insured against, 
only stipulating that the agency producing it shall be 
so strictly concealed as to be incapable of legal proof.*' 

'*To make an insurable interest, the life of the insured 
must have a money value to the party in whose favor 
the policy is made." 

''So, if the life of a husband or father contributes 
nothing in a pecuniary way to the maintenance of the 
wife or the children, it is not justly insurable for their 
benefit, no matter how great the loss of his life might be 
to them in point of love. There is no money value for 
the affections." 
I "A policy of insurance on the life of a beloved relative 
when there is really no insurable interest — that is, 
where the life is a pecuniary burden rather than other- 



434 Things Agents Should Know. 

wise, if not felt to be so — is a very awkward and un- 
comely piece of gambling." 

Concerning the subject of continuing insurance 
already in force upon the life of old persons, Wright 
held that a paid-up policy was entirely proper, on the 
ground that ''the loss has already occurred, and the in- 
demnity, already paid for, awaits the stipulated condi- 
tion of its becoming due." 

But as to policies which are to be maintained by 
further payments of premiums, he asks: ''Why, after 
the insurable interest has ceased beyond any chance of 
recovery, the insured or anybody else should be re- 
quired to pay further premiums?" 

On the subject of a woman insuring in favor of her 
husband, he says: "If the death of the wife involves no 
pecuniary loss to the husband, either a policy on her 
life for his benefit, or a joint policy on the two lives for 
the benefit of the survivor, is essentially vicious." 



Miscellaneous, 435 

BIRTH INSURANCE. 

A class of insurance which became the rage in Great 
Britain in the early part of the eighteenth century is 
the insurance of births. So far as is known, it origi- 
nated in the RepubHc of Genoa in 1608. It began in 
England about one hundred years later, in 1709. 

The plan was to form a mutual contribution calling 
for a fixed payment at stated periods or for a certain 
sum upon the birth of a child to the member, payments 
to cease whenever his own child was born, at which 
time one also became entitled to a benefit. Frequently 
the nominal sum insured was very large, sometimes 
even so much as $5,000; but the actual sum realized de- 
pended upon the number of subscribers. 

At first there were no precautions taken, but after 
some time it began to be required that the child should 
be born alive and that births within a certain number of 
wrecks after joining were shut out of benefit. 

The first company was called 'The Substantial and 
Profitable Office.'' This company gave a choice of both 
of the plans of payments. Its date w^as 1709. In 1710, 
from November 22 until December 31, inclusive, there 
were no fewer than twenty-five of these companies or- 
ganized, and the rush continued throughout the early 
!. part of the following year. 

By the 5th or 6th of March of that year parliament 
passed a law fining any person who should set up such 



i\ 



436 Things Agents Should Know. 



an office after March 8 $2,500. This did not require 
the discontinuance of the offices which had been already | 
opened, but most of them soon passed out of existence. 

At a later date several of the life insurance companies ij 
in Great Britain undertook also to insure against 
births; but the amount of the insurance was not payable 
upon the birth of a child, but only if the child thus born 
lived to a given age. Thus modified^ the plan never 
proved popular. 



i 



Miscellaneous. 4;17 

FAMILY ENDOWMENTS. 

There have been the most remaVkable sorts of Hfe 
insurance offered at different times in the history of the 
business. One of the most remarkable was that by a 
company known as the Family Endowment Society, es- 
tablished in England in 1835 ^^ith a capital of $500,000, 
a very small part of which, however, was paid up. 

This society did not insure the life of any living per- 
son, neither did it promise to pay an endowment to any 
living person. The contingencies with which it dealt 
were contingencies of birth as well as of death. It 
may be gathered from this that the contract was a very 
unusual one. 

Such it was in fact. It consisted in a promise to pay 
an endowment to each child, born of a given couple in the 
future^ upon that child's becoming of a certain age, such 
as 21. Thus the company stood a chance to gain the 
amount of the premiums if the child were never born, or 
if, having been born, it died before attaining the given 
age. The usual contract was to pay an endowment 
upon such child's attaining the age of 21, although en- 
dowments might also be secured payable at any other 
age. If desired^ a speculation could be had also by pro- 
curing a policy which would be payable only to chil- 
dren of one sex and for that problematical benefit one- 
half the usual premiums would be charged. 

As a general thing, of course, there was little doul)t 



438 



Things Agents Should Know, 



about a child's being born and that pretty promptly. 
Married people have such advantages over the insur- ) 
ance companies in •prevision on this subject that in all j 
probability the company counted upon the child's be- 
ing born, and did not discount its premiums on the 
basis of that being at all uncertain. This is sufficiently 
indicated, too, by the fact that the premiums were re- 
quired for 22 years, which would seem to imply that the 
company expected that by the end of 22 years an en- 
dowment would becom^e payable. 

The following are specimens of the rates of premium 
for an endow^ment of iioo, payable upon each future 



child becoming 21 



Age of the hus- 
band. 



26 
27 
28 
29 
30 
31 
32 
33 
34 
35 



Age of the 
wife. 



20 
21 
22 

23 
24 
25 

26 
27 
28 
29 



Annual premium 
per cent, for 22 
years, certain. 



9 2 
8 18 



d. 

3 
6 



Or annual pre- 
mium to cea^eat 
husband's death 
or after the 22d 
payment 



8 14 8 
8 10 II 
7 
3 
19 
15 
II 

7 



£ s. 

JO 19 

10 15 

10 II 

10 7 



10 

10 
9 



3 
o 

15 



9 II 
9 6 



d. 
o 
3 
4 
5 

10 
o 
8 

5 
It 



i 



Miscellaneous. 439 

THE AVERAGE POLICY DECREASES IN SIZE. 

The action of many of the companies in reference to 
increasing their Hmit of risk, some of them removing it 
entirely, and the frequent mention of the taking of very 
large amounts of insurance on one life, would lead one 
to expect that an investigation of the facts would show 
that the size of the average policy is increasing. That 
does not, however, appear to be the case. The facts 
are to the contrary, according to the Insurance Age, 
which has analyzed the returns of companies reporting 
to the New York Department, with results as follows: 

Average Average 

Amount of Amount of 

Year. Policy. Year. PoUcy. 

1859 $2,852 1875 2,481 

i860 2,921 1876 2,458 

1861 2,871 1877 2,457 

1862 2,819 1878 2,416 

1863 2,729 1879 2,418 

1864 2,698 1880 2,425 

1865 2,774 1881 2,455 

1866 2,7T,z 1882 2,467 

1867 2,896 1883 2,499 

1868 2,844 1-84 2,492 

1869 2,797 1885 2,482 

1870 2,706 1886 2,619 

1871 2,676 1887 2,661 

1872 2,629 1888 2,703 

1873 2,553 1889 2,759 

1874 2,498 1890 2,782 



440 



Things Agents Should Know, 



Year. 

1891 
1892 

1893 
1894 



Average 

Amount of 

Policy. 

.. 2,758 

. . 2,739 

. . 2,699 

. . 2,617 



Average 
Amount of 
Tear. Policy. 

1895 2,565 

1896 .. 2,514 

1897 2,439 



That is explained partly by the fact that the indus- 
trial companies are doing now quite a large amount of 
ordinary business in small amounts, but the explana- 
tion does not cover it wholly. The fact is that, while a 
few persons are becoming very much richer the number 
of persons in very moderate or even pinched circum- 
stances has been increased largely, so that it may be 
expected that the diminution in the amounts of insur- 
ance carried by them will far more than offset the large 
increase on the lives of the few who are very rich. 



Miscellaneous. 441 

A REMARKABLE THOUGH MISTAKEN 
PROPHECY. 

The late Henry R. Hayden, one of the keenest insur- 
ance writers of his time, once indulged in the view that 
the future of Hfe insurance, as influenced by the discrim- 
ination between risks which bade fair during the '70's 
to become general, was not promising. At that time 
several insurance companies were disposed to grade the 
lives offered them. These companies were naturally 
among the more daring and venturesome and, let us 
hope, were driven out of existence, not because of their 
discrimination among lives, but because of other less 
admirable fruits of their enterprise. They undertook 
not merely to grade up, or rather to rate up, when the 
life was not thoroughly up to the standard, but one or 
two of them also undertook to rate down or give a 
lower premium when the risk was better than the aver- 
age. 

The following is part of Mr. Hayden's prophecy: 
"There has seemed to me a possibility that the ele- 
ment of distribution, or contribution to loss which has 
in it a certain element of the principles of socialism or 
communism, would in process of time be eliminated by 
science; or, rather, that the probabilities would be re- 
duced to so narrow a margin as not to be worth 
'•' troubling ourselves about. With a mortality table ex- 
actly graded; with a medical examination which rejects 



V 



442 Things Agents Should Know. 



absolutely from 4 to 10 per cent, of the applicants, and 
which in some hands assumes to grade those who re- 
m_ain according to vitality; wdth the premium separated 
into its component parts of insurance, self-insurance and 
expense, we have only to go a little further with scien- 
tific refinements to make it, saving accidents and epi- 
demics, unnecessary for one portion of the people to 
insure and impossible for the other portion to get in- 



surance." 



He returned to the subject later, however, in the fol- 
lowing eloquent manner: ''Life insurance, as has been 
well said^ is the 'standing together, shoulder to 
shoulder, of hosts of manly men, to defend each other's 
homes from that enemy who shoots on the sly and in 
the dark.' When by our medical examinations we shall 
be enabled to measure the exact size of each individual 
mark at which this wily enemy shoots and grade its 
admission to the ranks by the chances of its being hit, 
we shall have taken out of life insurance its manliness 
and reduced the ranks to a scrambling host, each eager 
for a place of safety for himself. And, how^ever, it may 
be considered as a triumph of science, it will be the end 
of life insurance as a social force.'' 

As has been said, the institutions which, as a part of 
their rash enterprise, undertook to introduce discrimi- 
nation among lives, passed out of existence in the '70's. j. 
Naturally, conservative institutions were for a long lime || 
deterred from undertaking this business, simply be- 



Miscellaneous, 443 

cause the institutions which had undertaken it failed of 
success. They did not take the trouble to inquire 
whether their failure was due to this. It was enough 
that the companies which had tried it had failed. 
Within the last few years, however, the insurance of 
lives which would have been formerly rejected has 
been again undertaken, and this time, apparently, with 
success. In any event it is certain that Mr. Hayden's 
prophecy, that the results of this discrimination would 
be that fewer and fewer persons would be accepted, has 
proven erroneous. On the contrary, the result of grad- 
ing risks has been that a larger and larger proportion 
of the lives offered is being accepted, which is, after all, 
what might have been expected. 



Life Insurance Terms Defined. 



ACCELERATIVE ENDOWMENT. An insurance^* 
the maturity of which as an endowment is accelerated 
or hastened by applying dividends. 

ACCUMULATED DIVIDEND. A dividend payable 1 
at periods longer than one year, the surplus mean- 
while being improved at interest. 

ACCUMULATION PLAN. A plan of accumulated 
dividends. Distinguished from '^tontine'' by not 
promising accretions from forfeited surplus. 

ACTUAL INSURANCE. The difference between the 
sum payable at death and the terminal reserve, which 
difference is the amount the company w^ould have to 
meet from other funds. See ''Cost of Insurance," 
''Insurance Value,'' and "Self-insurance.'' 

ACTUARY. The mathematical officer of a life insur- 
ance company. In Great Britain also usually the 
manager. An expert in technical insurance, 

444 



Life Insurance Terms Defined, 445 

ACTUARIES' TABLE OE MORTALITY. A table 
of mortality, derived from the experience of 17 Brit- 
ish offices. Eirst adopted by Massachusetts as a 
standard. The standard in most States. See ''Com- 
bined Experience Table." 

ADDITIONS. Amounts added, because of dividends, 
to the sum insured, to be paid with it at death or 
maturity. Additions may be temporary; i. e., paj^- 
able only if death occurs that year, or permanent; 
i. e.y payable with the sum insured whenever due. 
The latter are also called paid-up additions, reversion- 
ary additions and reversions. 

ADMINISTRATOR. Person appointed by court to 
administer the affairs of a deceased. 

ADMISSION FEE. A fee charged in many assess- 
ment societies and fraternities for admission. En- 
trance fee. 

ADVANCES. Loans. Advances, however, may be 
recoverable, if made to an agent, only out of the com- 
missions as they fall due, or, if made on a policy, only 
out of its proceeds, while a loan, unless otherwise 
specified, will be a personal debt also. 

ADVANCES AGAINST RENEWAL COMMIS- 
SIONS. A loan against the same, usually made to 



44^ Things Agents Should Know, 

increase the first year's commissions. At one time 
such advances were allowed as assets, but now de- 
partments do not admit them. 

ADVERSE SELECTION. The deterioration of the 
average hfe insured by a company, by reason of the 
withdrawal of healthy lives. 

AGE. In life insurance usually taken to nearest birth- 
day. In industrial insurance, however, to next birth- 
day. 

AGE ATTAINED. Present age, as distinguished 
from age at entry. 

AGENT. One who acts for another. In life insurance 
usually either a solicitor or manager of soHcitors, 
the form.er being comm.only called a ''special agent'* 
and the latter a "general agent,'' though both w^ords 
mean something widely different as construed in the 
courts. 



ALLOWANCES. Sums allowed an agent in addition 
to commission and salary, as to cover postage, rent, 
office salaries, etc. 

AMERICAN EXPERIENCE TABLE OF MOR- 
TALITY. A table of mortality constructed by Shep- 
pard Homans from the experience of the Mutual Life 
Insurance Company of New York and data of the 



■1 



Life Insurance Terms Dcfiiicd. 447 

Actuaries' Table. First adopted as a standard in New 
York. Now the standard in several States. 

AMOUNT AT RISK. Insurance in force. Sometimes 
the ''actual insurance.'' 

ANNUAL DIVIDEND. A dividend which is de- 
clared and paid annually. 

ANNUAL PREMIUM. A premium which is payable 
once a year. 

ANNUITANT. A person to whom an annuity is pay- 
able. 

ANNUITY. Literally a payment to be made annually, 
but also applied to payments made at regular intervals 
during the year, as quarterly, etc. An annuity certain 
is one payabe for a definite time; a life annuity is pav- 
able so long as a given life endures; a temporary 
(life) annuity, for a given period if the life en- 
dures; a deferred (life) annuity, after a given period 
if the life endures, and so long as it endures; a 
joint life annuity, until one of the lives fail; a ''last 
survivor" annuity, ujitil both lives fail; a contingent 
or survivorship annuity, if one life survives another, 
and so long as it survives. 

'» 
APPLICANT. The person who applies for life in- 
surance. 



44^ Things Agents Should Knozv. 

APPLICATION. The request for insurance, includ- 
ing representations, promises and warranties made in 
order to secure insurance. See 'Troposal/' 

ASSESSMENT. A premium demanded for insurance 
after the same has been furnished; also a premium 
when of indeterminate amount, even though in ad- 
vance; also a sum demanded in addition to the regular 
premium. 

ASSESSMENT PLAN. A plan of insurance where 
the premiums are post-mortem,, or of indeterminate | 
amounts, or subject, if found to prove inadequate, to 
increase by assessments. 

ASSETS. Resources; but not including the present ! 
value of premiums, other than deferred, receivable in 
futture. 

ASSURx\NCE. Equivalent to insurance. 

ASSURE. Equivalent to insure. In Great Britain the 
distinction is sometimes made that the beneficiary is 
assured and the life proposed is insured. The dis- 
tinction is not generally recognized. 

ASSIGNEE. Tlie person to w^hom the benefits under 
a policy are assigned. 

ASSIGNMENT. The transfer of the benefits of a 
policy from one person to another. May be absolute 



Life Insurance Terms Defined, 449 

when the entire interest is transferred uncondition- 
ally; partial when but a part-interest is transferred; 
and conditional when the transfer is conditional, as 
to secure the payment of a debt. 

AUTOMATIC EXTENSION. A provision by which, 
upon failure to pay a, premium, the insurance is carried 
for a fixed period as a non-participating paid-up tem- 
porary insurance. 

AUTOMATIC NON-FORFEITURE. A provision 
by which, upon failure to pay a premium, the policy 
is continued in force as before, without forfeiting any 
rights thereunder, the premium being charged against 
it as a loan. 

AUTOMATIC PAID-UP INSURANCE. A provi- 
sion that upon failure to pay premiums the policy 
shall, without action of the insured, become paid-up 
for such amount as is specified. 

BENEFICIARY. The person to whom the proceeds 
of a life insurance are payable upon the death of 
the insured. Such a person may also be the legal 
owner of the policy, entitled to its surrender value or 
maturity value if an endowment; but not neces- 
sarily so. 

BENEFIT. The sum or sums payable, whether at death 



450 Things Agents Should Know, 

or maturity or as an annuity. Usually applied only 
- to guaranteed benefit and not to surplus. 

BINDING RECEIPT. A conditional receipt given 
for a premium paid in advance, providing usually that 
if the company approves the application the policy 

".■ will be issued and will date from the day the pre- 
mium is paid. 

BOND. A surety instrument, signed by an agent and 
his sureties, guaranteeing that he will forward all 
moneys belonging to his company. Sometimes it 1 
also guarantees the performance of his duties, and I 
occasionally also even the repayment of loans or 
advances. Some policies are also called ''bonds,'' en- 
. dowments mainly. 

BONUS. Equivalent to dividend. The word most 

commonly used in Great Britain. In America the 

distinction is sometimes made that it is a profit, not 

^ actually called for by the contract, or at least not in 

' such terms as would govern the company in deter- 
mining the amount. Also a sum paid in addition to 
the usual commission for an increased business or for 
a certain, amount of business. 

BONUS ADDITIONS. The same as "Dividend Ad- 
' ditions.'' 



Life Insurance Terms Defined, 451 

BREACH OF WARRANTY. The failure of any- 
thing warranted in the appHcation to be true or to 
be performed, as the case may be. Such breaches 
render a poHcy void — generally only if death occurs 
within one, twO' or three years. The laws of several 
States require a copy of the application to be attached 
to the policy, in order that its statements and prom- 
ises may be deemed warranties. 

BROKERAGE. A commission paid to a broker, as 
distinguished from a company's own agent. The 
word, however, has comie to mean more commonly a 
commission upon the first premium, no commission 
being paid upon subsequent premiums. 

CALL. An assessment. 

CANCELLATION. The act of rendering a policy 
void on the initiative of the company. Companies 
rarely reserve the right to cancel and very seldom 
attempt it. Policies which are surrendered are some- 
times also' said to be cancelled. 

CARLISLE TABLE OF MORTALITY. A table of 
mortality constructed by Joshua Milne from, mor- 
tuary statistics of Carlisle, England. Long a stand- 
ard table in Great Britain. 

CERTIFICATE. The policy issued by a mutual as- 
sessment company or fraternity. 



45^ Things Agents Should Know. 

CERTIFICATE, FRIEND'S. A certificate to the 
character and habits of an applicant, furnished by a 
friend. 

CERTIFICATE, MEDICAL OR HEALTH. A cer- 
tificate signe'd by the insured (health), or by a physi- 
cian (medical), or by both, stating that the insured is 
in good health. Required in reinstating lapsed pol- 
icies or before delivering policies which have been 
undelivered for one, two or three months, according 
to the instructions of the company. 

COMBINED EXPERIENCE TABLE. Another 
name for the Actuaries' or 17 Offices' Table. 

COMMISSION. The remuneration of a soliciting 
agent, based usually upon the amount of the premium. 
The same is generally due and deductible out of the 
premium as soon as the same is collected; but some- 
times it is payable only when the premium has been 
paid in full to the company. 

COMMISSIONER OF INSURANCE. The chief 
State official charged with the supervision of insur- 
ance. In some States called ''Superintendent of In- 
surance." 

CONSIDERATION. The thing because of which a 
promise is made; usually money, but sometimes also 
statements and promises. 



Life Insurance Terms Defined. 453 

CONSOL. A bond issued by Great Britain guaran- 
teeing the payment of an income perpetually. The 
name has also been taken for a policy which pays, 
after the insured's death, an income during the life 
of the beneficiary, and upon the beneficiary's death 
a fixed sum. 

CONTINGENT ANNUITY. See "Annuity." 

CONTINUOUS INSTALMENT INSURANCE. An 
insurance which is payable upon the death of the 
insured, also on maturity, if an endowment, in instal- 
ments for a fixed term^ of years, with the further con- 
dition that the payments shall continue throughout 
the life of the beneficiary, if surviving the fixed term 
after the death of the insured or throughout the lives 
of the insured and beneficiary — the last survivor — if 
one or both survive the fixed termi after the maturity 
of the endowment. 

CONTRIBUTION PLAN. A mode of distributing 
surplus invented by Sheppard Homans and David 
Parks Fackler, then actuaries of the Mutual Life In- 
surance Company of New York, and first adopted by 
it. It provides for a return of surplus as the same 
is contributed; i. e., surplus from excess interest in 
proportion to the reserve; from mortality salvage, in 
proportion to the ''cost of insurance;" from expense 
salvage, in proportion to the ''loading." 



454 Things Agents Should Know, 

CONTRACT. An agreement. An insurance policy is 
considered a unilateral contract, calling for perform- 
ance on but one side, the conditions precedent being 
performed. It is also subject to the rule of law that 
a contract must be construed strictly against the party 
that draws it up and beneficially to the other party. 

COST OF INSURANCE. The mortality charge for 
the year made against a policy of insurance. The 
tabular cost of insurance is the cost of the ''actual 
insurance;'' i, e., the whole sum payable, less the 
terminal reserve, at the tabular one-year term rate at 
the attained age. 

CREDITORS. In most States the proceeds of pol- 
icies, payable to wives or children, are not subject 
to execution to pay debts of the insured; but this 
rule is often modified by statute. In one State, Iowa, 
policies are exempt, even though not payable to wife 
or children; but in most States policies payable to 
''estate'' w^ould not be exempt. Endowments and 
their proceeds are also exempt in Iowa, but not 
elsewhere. Assignments in favor of creditors are 
usually subject to proof of interest, but not always. 

CREDIT FOR PREMIUMS. Agents are not author- 
ized usually to give credit for premiums. In the ab- 
sence of such authority they may do so on their 
own account, becoming personally responsible for the 



Life Insurance Terms Defined. 455 

premiums if this is known and consented to by the 
company. Otherwise, if a renewal premium, an agent 
might be held liable for the damage done his com- 
pany as to pay a death loss thereby incurred. 

DEATH CLAIM. A claim because of the death of the 
insured. 

DEATH LOSS. A loss because of the death of the 
insured. 

DEATH RATE. Usually the number dying per 1,000 
lives exposed.. Misleading as a mode of comparing 
because insured are differently distributed as tO' ages. 

DECLINED. Refused for insurance. Rejected. 

DECREASING INSURANCE. A plan where the 
amount payable at death decreases each year. Two 
such plans have been used in the United States, 
one being an insurance for the amounts of ''actual 
insurance" under a whole life or other policy, and 
the other being an insurance on the natural premium 
plan foir such an amount as an unvarying premium 
will purchase at the attained age. 

DECREASING PREMIUMS. A plan where the 
I premium diminishes each year. Two such plans have 
been lately introduced in the United States, one re- 
ducing the premium each year by 3 per cent, on the 



4S6 Thmgs Agents Should Know, 

total premiums already paid, and one reducing each 
premium below the last one by a definite amount until 
it is wiped out, and thereafter paying an annuity an- 
nually increasing by the same amount. 

DEFERRED ANNUITY. An annuity the first pay- 
ment of which is due at the end of a term of years. 

DEFERRED DIVIDEND PLAN. A plan of dis- 
tributing surplus at the end of a term of years. 

DEFERRED INSURANCE. An insurance which 
begins at the end of a term of years. 

DEFERRED PREMIUM. A monthly, quarterly or 
semi-annual premium for the first year of insurance, 
not paid in advance. 

DEFICIENCY. State of having resources of less 
value than liabilities. Also the amount of impairment. 
Imii>airment is sometimes distinguished from de- 
ficiency as follows : There is an impairment when the 
resources are less than all liabilities, including to 
stockholders; and a deficiency when less than all 
liabilities, excepting to stockholders. 

DEGREE OF IMPAIRMENT. Companies that ac- 
cept impaired lives often grade them into classes. 
This classification is by "degree of impairment." 



Life Insurance Terms Defined. 457 

DELIVERY. The actual tender of a policy to the 
insured or beneficiary. To accept a premium is con- 
structive delivery. To leave a policy merely for ex- 
amination is not delivery at all. A policy is not in 
force until delivered, unless by special agreement. 

DEPOSIT FOR RESERVE. What remains of the 
net premium after the ''cost of insurance" is de- 
ducted. This sum with its interest goes to increase 
the terminal reserve. See ''Cost of Insurance'' and 
"Elements of Premium.'' 

DISEASED LIVES. Lives that are much impaired. 
In Great Britain lives that are at all impaired. 

DISTRIBUTION. A division and allocation, as of 
surplus. 

DISTRIBUTION PERIOD. The term at the end of 
which surplus is distributed. 

DIVIDEND. That portion of the surplus which is 
distributed to a policy. See "Bonus." 

DIVIDEND ADDITIONS. Dividends in the form of 
additions to the sum insured. See "Additions." 

DIVIDEND ENDOWMENT. A life policy which is 
transformed into an endowment, the dividends being 
applied to augment its cash value at the end of a 



458 Things Agents Should Know. 

fixed period, or to accelerate its maturity as an en- 
dowment for its face. 

DOUBLE ENDOWMENT. A contract promising 
the payment of a sum in event of death during a 
certain term, and twice that sum if one survives the 
term. Thus the "actual insurance" becomes a minus 
quantity after the term is about half completed. This 
and the fact that the net premium is about the same 
at all ages from, 20 to 60, makes the plan popular 
for impaired lives. 

DUES. Premiums or assessments in assessment 
societies or fraternities; more commonly only that 
part which is for expenses. 

ELEMENTS OE A PREMIUM. The "net premium" 
and "loading." Sometimes also the net premium 
is considered to be further divided into "deposit for 
reserve" and "cost of insurance," but the line be- 
tween these two shifts each year. Mathematically, 
they are complementary variables, one increasing as f 
the other decreases, and their sum always being 
equal to the net premium. See Elizur Wright's "Sav- 
ings Bank Life Insurance." 

EMBEZZLEMENT. Conversion of funds held by 
one as agent to his own use. Merely to be short 
in accounts because of failure to collect notes 



Life Insurance Terms Defined, 459 

which the company permits one to take at his own 
risk, may not be embezzlement, and certainly is not 
it practice is known and all premiums actually col- 
lected have been accounted for. 

ENDORSEMENT. A special agreement or stipula- 
tion written upon a policy or attached thereto. The 
conditions of life insurance policies usually provide 
that only the signatures of certain officers will make 
endorsements binding. Agents have no such au- 
thority. ^ I 

ENDOWMENT. A payment to be made to one upon 
survival of a term of years. A simple endowment is 
such a payment to be made upon a definite day with- 
out regard to survival, or the accumulated value of 
which is to be accounted for at death. A pure en- 
dowment is a payment toi be made only in event of 
survival, nothing being paid in event of prior death. 
'"Endowment" is often used also as equivalent to ''en- 
dowment insurance.'* 

ENDOWMENT IN ADVANCE. A plan of instal- 
ment loans, payment to cease upon death of the bor- 
rower, and otherwise to continue for a fixed number 
of years. The amount of the endowment is realized 
I in advance, and the payment of the premiums — the 
entire payment is called the premium — is secured by 
real estate mortgage. The premium is really com- 



460 Things Agents Should Knew, 

posed of a premium for a like endowment insurance 
due at the end of the period or at prior death, and an 
instalment of interest upon the sum paid, treated as a 
loan due at the end of the period. 

ENDOWMENT INSURANCE. A fixed payment to 
be made to one upon surviving a given period or to 
his beneficiary in event of his prior death. 

ENTRANCE FEE. Same as '^Admission Fee.'' 

ESTIMATE. A calculation of probable results based 
upon assumptions not certain to be realized. 

EXAMINATION. The inspection and questioning of 
a person whose life is proposed, by the physician em- 
ployed by the company. 

EXAMINER'S FEE. The fee charged by the physi- 
cian for examinations. Nowadays usually paid by 
the company; formerly by the applicant, especially 
when the insurance was small. Sometimes applicant 
was required to pay same, and the amount was re- 
imbursed when he accepted the policy and paid the 
premium. The amount of the fee ranges from 50 cents 
in industrial insurances to $5.00, and even $10.00 
in certain cases. 

EXECUTOR. A person appointed by will tO' carry out 
its provisions. 



Life Insurance Terms Defined. 461 

EXEMPT. ''Exempt from seizure upon execution/' 
See ''Creditors/' "Exempt from taxation/' free from 
taxation. Insurance policies are not taxed in most 
States, and the assets of life insurance companies, 
aside from real estate, are also generally free from 
taxation, though not always. 

EXPECTATION OR EXPECTANCY. The average 
number of years which persons, starting out from a 
certain age, will live, assuming mortality according to 
a given table. Found by adding together the years 
that each will live and dividing by the number setting 
out. Not used in life insurance computations and not 
the same as 'Trobable Life/' 

EXPECTED LOSSES OR MORTALITY. The ag- 
gregate death losses a company would experience if 
deaths occurred precisely as per the table of mortality 
used. Sometimes, also, used to mean the aggregate 
''costs of insurance;"' i, e,, total expected losses less 
reserves that would be released. 

EXTENDED INSURANCE. A form of continuing 
the insurance for the original amount by applying the 
value or a part thereof as a single premium for tem- 
porary insurance. < 

^EXTRA HAZARD. Risk of death beyond the ordi- 
nary. Usually applied to increased risk because of 



462 Things Agents Should Know, 

occupation, residence or travel, and not because of 
iniipairment of health, and generally charged for by 
an extra premium;. 

EXTRA PREMIUM. A premium charged in addi- 
tion to the usual premium, to cover some extra 
hazard assumed by the company. • 

FACE OF POLICY. The sum insured, without ad- 
ditions from bonuses or return premiums or other 
increments. 

FAILURE TO PAY PREMIUM. Policies are ren- 
dered void by failure to pay premium promptly unless 
continued by ''Grace," "Automatic Extension," or 
''Automatic Non-forfeiture.'' Agents are not given 
authority to waive payment of premium when due or 
to receive overdue premiums except under instruc- 
tions; by assuming such authority they render them- 
selves liable for any loss the company may suffer 
thereby. But usually they have the right to advance 
the premium for the insured, if they desire. 

FARR'S MORTALITY TABLES. Three sets of 
tables for male and female lives, known as No. i, No. 
2 and No. 3, derived from population statistics of 
Great Britain, and constructed by Dr. William, Farr. 
The No. 3 male table, with 5 per cent, interest, was 
the first standard in New York. 



Life Insurance Terms Defined, 463 

FIRST YEAR TERM. A plan of level premium insur- 
ance under which it is stipulated that the premium flor 
. the first year is wholly or in part a premium for one- 
year term insurance only. 

FORFEITURE. The act of forfeiting. In life insur- 
ance the term signifies the loss of the value of a policy 
beyond the value of the insurance already enjoyed. 
Little is now forfeited upon discontinuance excepting 
the last year's surplus in nearly all companies and 
all surplus on deferred dividend plans. 

FRATERNAL INSURANCE. Life insurance in fra;- 
, ternal societies, usually on the assessment plan. 

FRAUD. Fraud differs from mere misrepresentation 
in that design must be present. It is a maxim of 
law that it vitiates all contracts. Whether courts will, 
however, on the ground of public policy, disregard an 
''indisputable clause," is yet to be determined. 

FRAUDULENT MISREPRESENTATION. To 
prove that a misrepresentation is fraudulent it is ne- 
cessary to show (ist) that it is untrue, (2d) that the 
maker knew it to be untrue, (3d) that he made it 
with fraudulent intent, and (4th) that it is material. 

FREE TONTINE. A form of tontine life insurance 
under which the surplus only of lapsed policies goes 
to increase the profits of the persistent survivors. 



464 Things Agents Should Know. 

FRIENDLY SOCIETIES. The term used in Great 
Britain to signify ''mutual, cooperative, life insurance 
societies." It covers both ''assessment insurance so- 
cieties" and ^'fraternal insurance societies" in Ameri- 
can parlance; but most British Friendly Societies long 
ago ceased to use unscientific assessment plans. 

GENERAL AGENT. At law an agent with plenary 
powers to act for his principal. In life insurance usu- 
ally applied to agents who have charge of a field or 
an agency, with other agents under them. 

GOLD BOND. A form of insurance, the premiums 
and payments by the company being payable in gold, 
which conforms otherwise to the conditions given in 
defining "Bond." 

GOVERNMENT ANNUITY TABLES. Mortality 
and annuity tables constructed from the experience 
of the British Government with annuitants. These 
tables are standard for annuities in almost all English 
speaking countries. 

GRACE. A special condition that if a premium be not 
paid when due, the insurance shall continue in force 
during the term of grace within which time the pre- 
mium, together with interest or a fine, may be paid. 
In most cases the forborne premium is deducted if 
death occurs during grace; in a few cases this is not 



Life Insurance Terms Defined, 465 

so. The first appearance of ''Grace'' was in the Deed 
of Settlement of the '"Equitable" of London, in 1762. 

GROSS PREMIUM. The entire or office premium. 

GROSS VALUATION. A form of finding the reserve 
under which the value of future gross premiums is 
offset against the value of policy obligations, thus in 
effect assuming that there will be no expenses or 
contingencies to be provided for. See "Reserve." 

GUARANTEEiD INTEREST. A promise of a definite 
income. Usually in the following form,: After a cer- 
tain period an income to the insured for a certain 
.period, being a percentage upon the face of the 
policy, which is itself paid when the period expires. 
Sometimes an income to the beneficiary after the 
death of the insured, payable either for a term of 
years or for life, with the face of the policy payable 
after the period expires. When the apparent interest 
is higher than that assumed by the company in its 
computations, the excess is provided by increasing the 
premium, so as to make the accumulation when the 
incom,e period begins, enough more than the face of 
the policy, to equal the present value of an annuity 
of the excess income. Another form of "guaranteed 
interest" is one by which the premium: is each year 
diminished by the amount of interest at a certain ratii 



466 Things Agents Should Know. 

on the premiums already paid. See ''Decreasing 
Premiums/' 

GUARANTY. A definite promise, not dependent upon 
surplus earnings. This is the usual meaning in Amer- 
ican life insurance parlance. The primary meaning 
is a thing guaranteed or the language guaranteeing it. 

HEALTH CERTIFICATE. See "Certificate, Health 
and Medical." 

H^ AND HF MORTALITY TABLES. Healthv male 
and healthy female mortality tables. Most commonly 
used as a name for the 20 British Offices' Tables; but 
sometimes for some of Farr's tables. 

IMPAIRED LIVES. Sometimes also called '^sub- 
standard," ''underaverage,'' or "diseased.'' Accepted 
on endowment plans or with extra premiums or with 
a diminishing lien upon the policies. In other coun- 
tries usually "rated up;" i. ^., taken as of a higher age. 

IMPAIRMENT. See "Deficiency." 

INCONTESTABLE. Not to be contested. See "In- 
disputable." 

INCREASING INSURANCE. A plan of insurance 
where the sum payable at death is larger each year. 



li 



Life Insurance Terms Defined. 467 

INCREASING PREMIUMS. A plan of insurance 
where the premium is larger each year, as in ''natural 
premium'' insurance. 

INDISPUTABLE. Incontestable; not to be disputed 
or contested. Life insurance policies are very fre- 
quently indisputable by their terms after two or three 
years, in a few cases from^ their delivery. See 
"Fraud." 

INDUSTRIAL INSURANCE. Life insurance with 
weekly premiums. Mainly for small amounts and 
upon the lives of wage-earners and their families. 

INSPECTION. In "ordinary" insurance an inves- 
tigation of the life and habits of an applicant. In 
industrial insurance a physical examination, not so 
exhaustive as is required for "ordinary" insurance. 

INSTALMENT INSURANCE. An insurance the 
benefits of which are payable in instalments for a 
term of years. 1 ) 

INSTITUTE OF ACTUARIES' MORTALITY 
TABLES. Tables of mortality, otherwise known as 
H^ H^^5 an'd H^ and as 20 British Offices' Tables, 
derived from the experience of 20 British companies. 
Standard in Great Britain and many of her colonies. 



468 Things Agents Should Knozv. 

INSURABLE INTEREST. The financial interest of 
the beneficiary in the life of the insured. The in- 
terest of wife or husband, children, father, mother, and 
even more remote relatives, is generally recognized to 
an indefinite amount, if they pay the premiums, or, 
usually, for a limited amount, if the insured pays. In- 
terest of a debtor usually confined to amount of debt, 
but not by all States. Law in United States mainly 
by decisions of judges and not statutes; in Great Brit- 
ain the ''GambHng Act." In United States frater- 
nities are frequently not subject to these rules. 

INSURANCE VALUE. The present value of future 
''costs of insurance.'' This was selected by Elizur 
Wright as a basis for his "surrender charge'' to off- 
set possible adverse selection. Such a basis was until 
1900 recognized by the laws of Massachusetts. 

INSURED LOANS. Loans upon real estate with life 
insurance policies for the amount loaned as collateral; 
generally endowment policies. 

INTEREST. The price paid for the use of money. In 
life insurance computations it is assumed that the 
funds will earn a certain rate of interest. State stan- 
dards have varied from 3-I per cent., the rate now used 
by Massachusetts, to 4 per cent., in very common 
use, 4^ per cent, long the standard in New York, and 



Life Insurance Terms Defined. 469 

still in some other States, and even 5 per cent., the 
first standard in New York. 

INTERMEDIATE. A plan of level premium insur- 
ance for $500, without so exacting an examination as 
for "ordinary;" sold by industrial companies. 

JOINT LIFE ANNUITY. An annunity which is pay- 
able until any one of two or more given lives fail. See 
"Annuity." 

JOINT LIFE INSURANCE. An insurance which is 
payable upon the failure of any one of two or more 
given lives. See "Partnership Insurance." 

LAPSE. The determination of an insurance through 
failure tO' maintain the same by the payment of 
premiums. 

LAPSE PROFITS. The gains to persistent policy- 
holders by the division among them of the forfeited 
value, including surplus, of lapsed policies. An im^ 
portant element of "tontine" profits. 

LAPSED POLICY. One which has ceased to be in 
force because not maintained by the payment of 
premiums. 

LEGAL RESERVE. The reinsurance reserve required 
by law to be maintained by a life insurance companjr, 



470 Things Agents Should Know. 

LEGAL RESERVE COMPANIES. Companies which 
are incorporated and operating under laws which re- 
quire a mathematically sufficient reserve to be main- 
tained. 

LEVEL PREMIUM. A premium which does not 
vary during the term for which it is payable. 

LEVEL PREMIUM COMPANIES. Literally com- 
panies which charge level premiums only, as distin- 
guished from those which charge increasing or de- 
creasing premiums; but used commonly as equivalent 
to ''legal reserve companies." 

LIEN PLAN. A plan of insurance for impaired lives 
or for substitution for assessment policies where a 
lien is charged against the sum payable at death in 
one case and against all proceeds of the policy in the 
other. In impaired life insurance the lien is merely 
a way of making the insurance less than the face of 
the policy. In substitutions it is equivalent to a loan 
of the reserve value. 

LIMITED PAYMENT OR PREMIUM PLAN. The 
limited payment or premium plan of insurance is one 
where the term of premium payment is shorter than 
the complete term of the insurance. 

LIMITED TONTINE. A form of insurance with ton- 



I 



Life Insurance Terms Defined. 421 

tine dividend where the surplus only is forfeited upon 
surrender. 

LOADING. An amount added to a net premium to 
make the office or gross premium. It is considered 
a provision for expenses and contingencies. 

LOAN NOTE PLAN. A plan, at one time very pop- 
ular in the United States, by w^hich part of the pre- 
mium was payable by giving an interest-bearing note, 
the annual dividends being applied to reduce the in- 
debtedness. 

LOST POLICY. When a life insurance policy is lost 
it is rare that companies will issue a duplicate. If the 
insured dies and the policy cannot be found, the 
amount of it is usually paid to the beneficiary without 
question, but a bond to protect the company is often 
required. 

MEAN ASSETS. Average assets for the year, usually 
approximated by adding the assets at the beginning 
of the year and at the end of the year and dividing 
by two. 

MEAN AMOUNT OF INSURANCE IN FORCE. 
Average amount in force during the year. 

MEAN RESERVE. The reserve on the assumption 
that the policies are on the average six months past 



472 Things Agents Should Know. 

their anniversaries. The mean reserve is approxi- 
mated by adding the initial reserve (the last terminal 
reserve plus the net premium) to the terminal reserve 
for the year and dividing by two. Also called "mid- 
year'' reserve; "mid-month'' reserve is also known as 
"mean." 

MEAN VALUATION. The process of finding the ag- 
gregate mean reserve. 

MEECH'S TABLE OF MORTALITY. A table of 
mortality constructed from the combined experience 
of 30 American companies. Little used and nowhere 
adopted as a standard. 

MID-YEAR RESERVE. See "Mean Reserve." 

MID-MONTH RESERVE. See "Monthly Reserve." 

MINOR CHILDREN. Policies in favor of minor 
children cannot be assigned or surrendered for cash 
or be loaned against unless control over such privi- 
leges has been definitely reserved to the insured. 

MISREPRESENTATION. A misstatement, a repre- 
sentation that facts are other than they really are. 
Unless statements are made warranties, misrepre- 
sentations in the application will not render an in- 
surance void unless the same are fraudulent. S^e 
"Fraudulent Misrepresentation." 



Life Insurance Terms Defined, 473 

MIXED COMPANY. A stock life insurance com- 
pany issuing participating policies wholly or in part, 
and sometimes also admitting policyholders to a part 
in the management. 

MONTHLY PREMIUM. A premium which is paid 
each month. \ 

MONTHLY RESERVE. The reserve up to the mid- 
dle of the month in the policy year — a close approxi- 
mation to the reserve on the day of valuation. See 
*'Mean Reserve/' 

MONTHLY VALUATION. A valuation to find the 
aggregate monthly reserve. 

MORTALITY GAIN. Salvage upon the death losses 
expected according to the table. 

MORTALITY TABLE. A table showing the num- 
ber of persons out of an original group at a certain 
age which die in each year thereafter until all the 
lives fail. ; 

MORTUARY DIVIDEND. Another name for "re- 
turn premium" benefit. 

MORTUARY LOSSES. Death losses. 

MUTUAL POLICY. A policy which participates in 
the earnings of the company; a participating policy. 



474 Things Agents Should Know, 

NATURAL PREMIUM. A one-year term^ premium 
or a premium for a term of less than one year. Usu- 
ally renewable without re-examination. 

NATURAL PREMIUM PLAN. A plan of life in- 
surance by which one pays for the insurance which 
he currently enjoys; i, e., at one-year term rates, with 
the privilege of renewal indefinitely. 

NET PREMIUM. The premium which, according to 
the standard of mortality and interest adopted, will 
just enable the company to discharge its obligations 
under the policy, without considering expenses or 
contingencies not embraced in the standards assumed. 

NET RESERVE OR NET PREMIUM RESERVE. 
The reserve on the basis that net premiums only will 
b€ available, together with the reserve, to discharge 
the obligations under the policy. It is thus tacitly 
assumed that the loading will be needed to cover ex- 
penses and contingencies. Also called ''Net Value." 
See "Gross Valuation." 

NET VALUATION. The process of finding the ag- 
gregate net reserve ; usually the mid-year reserve, but 
sometimes a monthly and in industrial insurance most 
frequently a terminal. 

NET VALUE. See "Net Reserve." 



Life Insurance Terms Defined. 475 

"NEW LINE." An euphemism for "assessment." 

NOMINEE. A word recently brought into use to 
signify a beneficiary whom the insured may dismiss 
for another at will. 

NON-FORFEITABLE OR NON-FORFEITING. 
Not subject to be forfeited by failure to pay premi- 
ums. Frequently used to mean with automatic ex- 
tension feature or merely with paid-up values. 

NON-PARTICIPATING. Not entitled to any share 
in the profits. The word "stock" is sometimes used 
as an equivalent. 

NORTHAMPTON TABLE OF MORTALITY. A 
table of mortality, long the standard in Great Britain, 
constructed by Dr. Richard Price fromi mortality sta- 
tistics of Northampton, England, and first used by 
the Equitable of London. The courts of the United 
States in many cases still use the table to value life 
interests. 

NOTICE. The laws of several States provide specific- 
ally for notice of premiums due before a policy can 
be lapsed for non-payment of premium. 

OCCUPATION. Persons engaged in certain danger- 
ous or unwholesome occupations are usually not ac- 
cepted for insurance excepting at an extra premium. 



476 Things Agents Should Know, 

To engage in such occupations within the earher 
years of the insurance usually renders it void. 

''OLD LINE/' A name given to 'legal reserve" com- 
panies to distinguish them from assessment societies. 

OPTIONS. Rights of choice. Usually several op- 
tions of settlement upon surrender are offered and 
especially at the close of deferred dividend periods. 

ORDINARY BUSINESS. Life insurances for $500 
or more, with premiums usually payable not more 
frequently than quarterly. Used to distinguish from 
industrial. 

ORDINARY LIFE. A plan of insurance for the 
whole term of life, with level premiums payable 
throughout Hfe. 

PAID-UP INSURANCE. Insurance for which no 
further premiums are payable. 

PARTICIPATING. Entitled to a share of the profits 
of the company. 

PARTNERSHIP INSURANCE. A form of insur- 
ance upon the lives of two or more business asso- 
ciates in favor of the firm or company, payable upon 
the demise of the first life that fails. See '7^^^^ Life 
Insurance." 



Life Insurance Terms Defined. 477 

PAYING INTO COURT. When there is a dispute 
between persons who claim under a poHcy, it is cus- 
tomary for a Hfe insurance company, when not dis- 
puting its HabiHty, to pay the sum into court, to be 
disbursed as the court decides, and thus escape costs. 

PERMIT. The waiver of a restriction in the poHcy. 

PERPETUITY. An annuity to be paid perpetually. 

POLICY. The contract of insurance. In form, a con- 
tingent promise to pay, for a consideration called the 
premiumi. 

POLICY LOANS. Loans upon the security of a life 
insurance policy. 

POSTPONED. The acceptance of an application de- 
ferred. 

PREMIUM. The consideration or price paid for in- 
surance. 

PREMIUM NOTE. A note given in partial payment 
of a premium. 

PRIVILEGES. Special concessions. 

PROBABLE LIFE. The period which one has an 
even chance to live, according to some mortality 



478 Things Agents Should Know, 

table; found by observing how soon the number liv- 
ing at one's age is reduced by one-half. 

PROOF OF GOOD HEALTH. Either a "Health 
Certificate'' or a "Medical Certificate/' See both 
under head of "Certificate." Usually a condition 
precedent to reinstatement. 

PROOFS OF LOSS. Attested evidence that the in- 
sured has died, identifying him and showing the time, 
place and cause of death. 

PROPOSAL. The word used in Great Britain instead 
of "application." 

PROSPECTIVE METHOD. The method of com- 
puting a reserve by computing the total present 
value of the company's obligations and deducting the 
present value of premiums yet to be paid. 

PROVISIONS. The conditions, restrictions and priv- 
ileges of a policy. 

QUARTERLY PREMIUM. A premium which is 
paid every three months; usually, however, merely 
an instalment of an annual premium-, the remainder 
of which is deducted from the face of the policy in 
event of death. 

RATE. The amount of premium (per $i,ooo usually) 
at a given age on a given plan. 



Life Insurance Terms Defined. 479 

RATING UP. Accepting an impaired life at an age 
higher than the real. 

RATIOS. The proportions of things to one another, 
usually for purposes of comparison. Frequently very 
misleading. 

REBATE. An amount paid back to the insured by an 
agent or company, out of premiums paid by him and 
not as a dividend, called for by the policy. Prohibited 
in most States by ''Anti-Discrimination Statutes.'' 

REFEREE. One to whom, a dispute is referred for 
decision. 

REGULAR. A name for companies, borrowed from 
the terms of the medical profession; equivalent to 
''legal reserve" and "old line.'' 

REINSTATEMENT. The process of restoring one's 
insurance after the same has lapsed or forefeited. 

REJECTED. Declined; refused insurance. 

RELEASE. An instrument, surrendering a policy and 
releasing the company from liability thereunder. 

RENEWABLE TERM. Term insurance, with the 
privilege of renewing for succeeding terms without 
proof of good health. 



480 Things Agents Should Know. 

RENEWAL COMMISSION. Commissions payable 
when renewal premiums are collected. 

RENEWAL PREMIUM. A premium^ paid to con- 
tinue an insurance after its first year. 

RENEWAL RECEIPT. A receipt for renewal or 
deferred premiums, signed by officers of the company 
and countersigned by the agent. 

REINSURANCE RESERVE. A reserve of an 
amount deemed sufficient to reinsure. 

REPRESENTATIONS. Statements made, usually in 
the application, to procure insurance. 

RESERVE. A sum held in reserve. In life insurance 
often used for ^'reinsurance' or ''unearned premium'' 
reserve. The reserve, thus considered, must be a 
sum which, together with future premiums, will, ac- 
cording to the standards of interest and mortality 
employed, be sufficient to enable a company to dis- 
charge its policy obligations. If gross premiums are 
taken into account, the valuation is called "gross." 
If net premiums only are considered, the valuation 
is called "net." Sometimes the valuation is called 
"modified gross" or "modified net," a deduction being 
made from the gross premiums for expenses, which 
still leaves them larger than the net premiums. 



LifQ Insurance Terms Defined, 481 

RESIDENCE, Frequently restrictions are placed 
upon residence in torrid or frigid climates. Usually 
removed after two or three years. Some companies 
impose no restrictions, 

RETROSPECTIVE METHOD. A method of deter- 
mining the amount of a net reserve by accumulating 
the net premiums and deducting the *'costs of in- 
surance;" it gives just the same result as the pros- 
pective method if the net premiums are precisely 
adequate. 

RETURN PREMIUM. A plan of insurance under 
which the amount of premiums paid is added to the 
face of the policy and is paid with it in event of the 
death of the insured. Such policies are sometimes, 
but rarely, with return of premiums if death occurs 
at any time; but more frequently premiums are only 
returned if death occurs during a limited period, as 
10, 15 or 20 years. Sometimes, also, only a part of 
the premiums, as one-half, is returnable. 

REVERSIONS. Paid-up additions to the amount in- 
sured, by means of dividends. 

REVERSIONARY ADDITIONS, DIVIDENDS OR 
i BONUSES. Same as ''Reversions.'' 

RISK. The probability of loss; the life insured. 



482 Things Agents Should Know. 

SAFETY CLAUSE. A provision that in event of 
impairment of the reserve the insured shall make the 
impairment good, either by scaling his policy, by let- 
ting the deficiency remain as a lien thereon v^ith in- 
terest, by increasing subsequent premiums by an an- 
nuity equivalent to the deficiency or by paying of? 
the same, 

SALARY. In ordinary insurance sometimes erro- 
neously used to signify regular weekly or monthly 
advances against commissions. In industrial insur- 
ance "ordinary salary'' means ''renewal commis- 
sions'' and "special salary" means "first year's com- 
missions." 

SALVAGE ON LOADING. The portion of the ag- 
gregate loading not required for expenses and con- 
tingencies. 

SALVAGE ON MORTALITY. The portion of the 
"costs of insurance" not required to meet actual 
death losses. See "Mortality Gain." 

SEAL. In former days life insurance policies were 
"under seal," the effect of which is that the instru- 
ment must be construed by reference to its own lan- 
guage and to other written instruments, "patrol" or 
verbal evidence being excluded. 



Life Insurance Terms Defined. 483 

SELECTED LIFE TABLE. A table of mortality 
showing the death rates upon persons insured one, 
two, three, four, five and more than five years 
separately. 

SELECTION. The process of choosing good lives by 
examinations ; also- ''adverse,'' the process of deteri- 
oration of average life by withdrawals of healthy lives. 

SELF-INSURANCE. A term meaning the ''terminal 
reserve,'' coined by Elizur Wright to express the idea 
that the insured contributed so much toward meeting 
his own death claim. 

SEMI-ANNUAL PREMIUM. A premium which is 
payable every six months; usually an instalment oi 
the annual premium, the remainder being deducted 
froni the claim if death occurs before it is paid. 

SEMI-TONTINE. a tontine insurance where only 
the surplus is forfeited upon discontinuance. 

SEVENTEEN OFFICES' MORTALITY TABLE. 
Another name for the "Actuaries' Table." 

JINGLE PREMIUM, One premium, payable in ad- 
' vaiice, no further premiums being required. 

SPECIAL AGENT. At law an agent with only special, 
as distinguished from general, powers. In life insur- 
ance, a common name for a soliciting agent. 



484 Things Agents Should Know. 

STAMP. A method of taxing life insurance com- 
panies. It is provided that the instrument shall not 
be valid unless so stamped. Usually the cost of the 
stamp is borne by the company, but sometimes by the 
insured. 

STARRED. Marked with a star. This usually signi- 
fies that the life is no longer desirable, and tha;t no 

. unusual concessions concerning payment of pre- 
mium after due are to be granted. 

STATE STANDARD. The mortality table and in-- 
terest adopted by the State in determining reserve 
liability. 

STEP- RATE. Another name for "natural premium;" 
so called because the premiums increase each year, 

STIPULATED PREMIUM COMPANIES AND 
PLAN. ''Stipulated premium'' is the name given to 
a modified assessment plan where a premium, in- 
tended to be level, is charged, but the right to assess 
is reserved, and there is not ordinarily held, as a lia- 
bility, a mathematical reserve equal to that required 
of regular companies on similar level premium 
policies. 

STOCK COMPANY. A life insurance company with 
capital stock. 



Life Insurance Terms Defiricd, 4^5 

STOCK PLAN. A non-participating plan. 

STOCK POLICY. A non-participating policy. 

SUB-STANDARD. Below the standard requirements 
for first-class lives; ''underaverage/' ^'impaired/' 
''diseased." 

SUICIDE. At law, the death of a man in the posses- 
sion of his senses, by his own act. Self-destruction, 
whether sane or insane, is usually not covered during 
the first two or three years. Suicide which is proved 
to be with the intent to defraud the company, would 
probably avoid any policy. 

SUPERINTENDENT OF INSURANCE. The chief 
supervising insurance officer of a State. See ''Com- 
missioner of Insurance." 

SURPLUS. The excess of a company's funds over all 
liabilities. The amount which is available for divi- 
dends. 

SURRENDER. A release, for a consideration, of a 
policy to the company, usually together with its actual 
return. 

SURRENDER CHARGE. A sumi deducted in fixing 
the surrender value as a charge, from the reserve 
value and the declared surplus of a policy offered for 
surrender. 



486 Things Agents Should Know. 

SURRENDER VALUE. The consideration in cash, 
paid-up insurance, extended insurance or annuity, for 
the surrender of a poHcy of insurance. Often one of 
such values apphes, however, at once upon discon- 
tinuance, without actual surrender being required. 

SURVIVORSHIP ANNUITY. An annuity payable 
to one or more persons if he or they survive one or 
more other persons, and as long as they do survive. 

SURVIVORSHIP INSURANCE. An insurance 
upon the life of one person, payable upon his death 
to a beneficiary, provided the beneficiary be then 
living. 

TAX. Money collected for governmental uses. The 
property of life insurance companies, other than real, 
is frequently exempt from taxation; but there is 
usually a tax upon their premiums. There are other 
taxes also in the form of license and other fees. 
The national government at present imposes a stamp 
tax. 

TEMPORARY ADDITIONS. Additions to the sum 
insured, provided death occurs within one year, pur- 
chased by dividends. 

TEMPORARY INSURANCE. Insurance .payable 
only if death occurs during a limited. term, as dis- 
tinguished from w^hole life and endow^ment insurance. 



I 



Life Insurance Terms Defined, 487 

TERMINAL RESERVE. The reserve at the end of 
a poHcy year. 

TERM INSURANCE. "Temporary insurance." 

TERM INSURANCE, FIRST YEAR. A device 
making the first premiums upon a poHcy for a longer 
period apply wholly or in part to pay for insurance 
for one year only, the option of renewing as a policy 
of the desired kind being granted. See ''First Year 
Term." 

TERM PREMIUM. A premium for term insurance. 

THIRTY AMERICAN OFFICES' TABLE. See 
"Meech's Table." 

TWENTY BRITISiH OFFICES' TABLE. See "In- 
stitute of Actuaries' Table." 

TONTINE. A plan of accumulation by which the sum 
accumulated is divided only among the survivors. 
In life insurance a plan under which those who dis- 
continue forfeit all interest and the gains fromi such 
forfeitures go to increase the dividends of those who 
persist and survive the tontine period. 

UNDERAVERAGE. Not up to the standard of a 
first-class life; "sub-standard," "impaired," diseased." 



488 Things Agents Should Know, 

UNDERWRITER. One who becomes responsible as 
an insurer. Often also used to mean one who is en- 
gaged in the insurance business as an officer, man- 
ager or agent. 

UNEARNED PREMIUM RESERVE. An expres- 
sion for "reserve," based upon the retrospective idea 
that enough has been accumulated out of past pre- 
miums, which has not been earned or needed to pay 
the mortuary cost in the past, to make good the 
needed ''reserve." 

VALUATION. The process of finding the aggregate 
reserve of a company or of a part of its policy ob- 
ligations. 

VALUE. Reserve. 

VOID. Not in force. 

WAIVER. Consent that a provision or restriction 
shall not apply. Only officers of the company gen- 
. erally have power to waive conditions of policies. 

WARRANTY. A statement or promise as a consid- 
eration for a policy, the strict and . literal truth or 
performance of which is guaranteed. If the thing 
guaranteed be not true in any respect, or be not pep- 
formed, the contract is void, without its being neces- 



Life Insurance Terms Defined. 489 

sary to prove that the misstatement was material or 
the failure in performance important. The ''incon- 
testable" clause neutralizes the warranty when it 
comes into effect. 

WEEKLY PREMIUM. A premium which is payable 
every week. Used in industrial insurance. Unhke 
monthly, quarterly and semi-annual premiums, it is 
usually not a mere instalmient of the annual premium 
and the unpaid portion of the annual premium is not 
deducted from the death claim. 

WHOLE LIFE. A policy for the entire period of life, 
with premiums payable throughout life. See ''Or- 
dinary Life." 



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